RBI signals intervention readiness as rupee seen ‘undervalued’ after 6% slide: Report – Firstpost

India’s central bank has indicated it stands ready to intervene in the foreign exchange market if needed, while also assessing that the rupee may now be undervalued following a sharp depreciation, according to Reserve Bank of India (RBI) Governor Sanjay Malhotra.

In an interview with Mint newspaper, Malhotra said the central bank would do “whatever is required” to maintain stability in forex market conditions, underscoring its focus on smooth price discovery rather than targeting any specific exchange-rate level.

No rupee target, but watch on volatility

Malhotra reiterated that the RBI does not aim for a fixed level for the rupee, but remains vigilant against excessive volatility and speculative pressures that could destabilise markets.

He said the central bank is prepared to step in if disorderly conditions emerge in the foreign exchange market, stressing that maintaining orderly trading conditions remains a key priority.

“The RBI will do whatever is required to ensure orderly price discovery in the forex market,” he said, signalling continued readiness to manage sharp swings in the currency.

Rupee down around 6% amid West Asia tensions

The Governor noted that the rupee has depreciated by about 6 per cent since geopolitical tensions escalated in West Asia following the outbreak of conflict on February 28.

The decline, he suggested, has pushed the currency into undervalued territory on both nominal terms and on a real effective exchange rate (REER) basis.

However, he added that currency movements remain cyclical and could reverse if global risk conditions stabilise. In particular, he said the rupee could appreciate once the situation in West Asia normalises.

Strong reserves give RBI policy firepower

Highlighting the central bank’s external buffer, Malhotra said the RBI has sufficient tools to address excessive volatility, including foreign exchange reserves of nearly $700 billion.

These reserves, he indicated, provide ample capacity to counter disorderly market conditions or speculative attacks, should they arise.

The remarks come at a time when global currency markets have been sensitive to geopolitical risks, shifting interest rate expectations, and capital flow volatility.

External sector pressures in focus

Beyond short-term market dynamics, the Governor pointed to broader structural considerations, including India’s current account deficit and capital account flows.

He said efforts are underway to reduce the current account deficit, while also emphasising the need for improvement in capital inflows to support external stability.

Inflation remains core mandate, growth supported when space allows

Malhotra also reaffirmed that inflation control remains the RBI’s primary mandate. However, he added that if the evolving inflation trajectory creates policy space, the central bank would support growth-oriented measures.

The comments reflect the RBI’s balancing act between maintaining price stability, managing external sector pressures, and ensuring orderly currency movements amid a volatile global backdrop.