Synopsis: RBI Governor Sanjay Malhotra clarified that the central bank does not target any specific level for the rupee. Despite the rupee breaching the 90-mark against the US dollar, RBI maintains that market forces determine currency value, and its interventions aim only to curb excessive volatility.
RBI: No Target Band for Rupee; Market Will Determine the Correct Level
Amid concerns over the rupee breaching the 90-mark against the US dollar, Reserve Bank Governor Sanjay Malhotra reiterated that the RBI does not aim to maintain the rupee within any fixed band. Instead, the central bank allows the currency to find its “correct level” based on market forces.
Speaking at the post-monetary policy press conference, Malhotra stated,
“We don’t target any price levels or bands. We allow the markets to determine prices. We believe that markets, especially in the long run, are very efficient.”
He added that fluctuations are a normal part of the forex market, and the RBI intervenes only to reduce abnormal or excessive volatility.
USD/INR Swap Is a Liquidity Measure, Not Rupee Support
In its bi-monthly monetary policy, the RBI announced three-year USD/INR Buy-Sell swaps worth USD 5 billion. When asked if this move was aimed at arresting rupee depreciation, the Governor clarified:
“It is a liquidity measure. It is not to support the rupee.”
He reiterated that the central bank does not defend any particular exchange rate level and allows the rupee to move freely.
India’s Forex Reserves Remain Strong
Despite the rupee’s fall, Malhotra emphasized that India’s external sector remains strong. As of November 28, 2025, India’s foreign exchange reserves stood at USD 686.2 billion, offering an import cover of more than 11 months.
He also noted that the current account remains manageable, and the country’s strong fundamentals should attract good capital flows.
Capital Flows and External Sector Trends
Foreign portfolio investment (FPI) saw a net outflow of USD 0.7 billion in 2025–26 so far due to persistent selling in equities. External commercial borrowings and non-resident deposits have also moderated compared to previous years.
However, the RBI highlighted that services exports, private remittances, stable inflation, and a resilient growth outlook continue to support the rupee.
Why Did the Rupee Depreciate Recently?
According to the RBI’s November bulletin, the rupee’s depreciation in October was largely due to a stronger US dollar, following the Federal Reserve’s decision to reduce its policy rate.
Despite this, the rupee has remained one of the least volatile currencies among emerging market economies. It has performed better than the Euro and has shown depreciation trends similar to the Japanese Yen and Korean Won.
RBI Measures to Strengthen Rupee Stability
Over the last three years, the RBI has introduced several measures to diversify and strengthen foreign exchange inflows. These steps aim to mitigate short-term volatility and protect the economy from global spillovers.
The central bank has also taken initiatives to enhance the international use of the rupee, including measures announced in the October monetary policy.
Focus Now on Transmission of Rate Cuts
Following the recent 25 basis point cut in the repo rate, the RBI will now focus on ensuring that the rate reduction is passed on to borrowers and the real economy.
📌 Key Takeaway
The RBI has made it clear that it does not defend any specific rupee level and allows market forces to determine the exchange rate. With strong forex reserves and stable economic fundamentals, the central bank expects the rupee to remain resilient despite global pressures.
Leave a Reply