A proposed revamp of the trade-weighted index India uses to manage the rupee will reflect burgeoning trade with China but will not herald any central bank readiness to loosen its hold on the currency.

The Reserve Bank of India (RBI) said it would add the Chinese yuan to its Real Effective Exchange Rate (REER) index, which it uses as a benchmark for monitoring rupee over-or under-valuation and as one signal for when it should intervene.

The revamp is long overdue and will capture India's contemporary trade flows better.

China has replaced the United States as the biggest source of imports for Asia's third-largest economy and bilateral trade with China reached $13.6 billion in 2004.

The RBI used to allow the rupee to float in a 3-5 per cent band as measured by the index, but this year it has let the currency appreciate by more than 10 per cent against that gauge, leaving traders guessing as to what reading might trigger action.

The central bank publishes its REER on a monthly basis but JPMorgan has a similar index available daily, which shows the rupee is presently 9.5 per cent overvalued at 109.50.

Analysts say that, in the near term, simply bringing in the yuan is unlikely to reduce the rupee's overvaluation, as measured on the existing REER, because the yuan is still largely linked to the U.S. dollar, which is recovering from a three-year decline.

( www.financialexpress.com)