New Delhi: Reserve Bank of India Governor Sanjay Malhotra has said the Indian rupee may now be undervalued following its sharp depreciation in recent months, while assuring that the central bank is prepared to act against excessive volatility in the foreign exchange market.
In an interview with Mint, Malhotra clarified that the RBI does not target any fixed exchange rate for the rupee but would step in whenever speculative pressures threaten orderly market movement.
“The RBI will do whatever is required to ensure orderly price discovery in the forex market,” he said.
The rupee has fallen nearly 6 per cent since the outbreak of the Middle East conflict on February 28, largely due to rising crude oil prices and heightened geopolitical uncertainty.
India imports more than 85 per cent of its crude oil needs, making the economy particularly sensitive to sustained increases in global oil prices. Higher crude prices can widen the current account deficit, fuel inflation and put pressure on the domestic currency.
According to Malhotra, the recent depreciation has pushed the rupee into undervalued territory both in nominal terms and in REER (Real Effective Exchange Rate) terms — a key measure of currency competitiveness adjusted for inflation.
“With recent depreciation, one could argue that the rupee has become undervalued, both in nominal as well as in REER terms,” he said.
The RBI governor also suggested that the rupee could recover once geopolitical tensions in West Asia ease.
“Once the situation in West Asia normalises, the rupee could appreciate,” he added.
Malhotra emphasised that the RBI has sufficient resources to deal with excessive market volatility, including foreign exchange reserves of nearly $700 billion.
“The RBI has enough tools in its kit, including nearly $700 billion in reserves, to quell any undue speculative movement,” he said.
On the broader economy, Malhotra stressed the importance of reducing India’s current account deficit and strengthening the capital account position.
He also reiterated that controlling inflation remains the RBI’s primary responsibility, while adding that the central bank would continue supporting economic growth whenever inflation conditions allow policy flexibility.
