According to Madhavi Arora, Economist, FX and Rates, Edelweiss Securities, the RBI is of the view that it should let underlying trade competitiveness improve gradually as the trade-weighted exchange rate
acts as a natural stabiliser.
Since the devaluation, the report indicates that Egypt's real effective exchange rate--that is, its trade-weighted exchange rate
deflated by inflation differentials--has fallen sharply and it is now around 25% below its long-run average.
In both cases, a negative local shock (housing bust in Mian and Sufi 2012, a rising trade-weighted exchange rate
for local manufacturing industries in our study) is assumed to reduce employment in local nontradable industries through a demand channel.
The effective trade-weighted exchange rate
is around 12% higher (indicating a depreciation) since end June-2014.
At the same time, the dinar's trade-weighted exchange rate
rose by around 4 percent.
Will it shift to target the RMB's trade-weighted exchange rate
, or will it continue to target the RMB-U.S.
dollar contributes the largest single currency weight in the construction of this rate, and movements in the yen-dollar exchange rate account for approximately three-fourths of the trade-weighted exchange rate
's annual variation.
"With this weak manufacturing print, the high likelihood of a technical recession, and falling core inflation, we think the conditions are right for the central bank to ease the pace of appreciation of its trade-weighted exchange rate
band," Credit Suisse economist Michael Wan said in a note to client.
The gap (e - [e.sup.*]) gives the nominal trade-weighted exchange rate
's deviations from a long-run trend path.
Many studies that presume an export role for FDI concentrate on trade-weighted exchange rate
This rebalancing of growth will be driven by the 8 per cent decline in this year's expected trade-weighted exchange rate
compared with 2007.