RBI Governor Malhotra Suggests Rupee May Be Undervalued Amid Recent Decline
Rupee may be undervalued after recent slide, RBI governor Malhotra says
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RBI Governor Sanjay Malhotra indicated that the Indian rupee might be undervalued following its recent depreciation, approaching the critical 100-per-dollar mark. He reassured that India's balance of payments is not a serious concern, emphasizing the central bank's cautious approach to currency intervention.
- 01Malhotra stated that the rupee is not overvalued and may be undervalued in nominal and real effective exchange rate terms.
- 02The rupee's depreciation is influenced by rising crude oil prices due to ongoing conflicts in West Asia.
- 03The RBI does not target a specific exchange rate and will only intervene during abnormal volatility or speculation.
- 04Despite the rupee's decline, Malhotra described India's balance of payments position as stable for now.
- 05The RBI's relaxed stance may reduce political pressure to intervene aggressively as the rupee nears 100 per dollar.
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Reserve Bank of India (RBI) Governor Sanjay Malhotra has suggested that the Indian rupee may be undervalued following its recent depreciation, which has brought it close to the psychologically significant level of 100 per dollar. Speaking to Mint, Malhotra clarified that the rupee is not overvalued and could be considered undervalued both in nominal terms and when assessed against the real effective exchange rate (REER). This assessment comes amid rising crude oil prices linked to the ongoing West Asia conflict, which heightens India's vulnerability due to its dependence on energy imports. Malhotra emphasized that the RBI does not aim for a specific exchange rate but will intervene only to manage abnormal volatility or speculation. He reassured that India's balance of payments situation is stable and does not warrant immediate concern, suggesting that the RBI is prepared to maintain a flexible approach without aggressively defending the rupee as it approaches the 100-per-dollar threshold.
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The rupee's depreciation could lead to increased costs for imported energy, affecting consumers and businesses reliant on oil.
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