The Reserve Bank of India doesn’t target any specific level for the rupee in the foreign exchange market and only intervenes in order to control excessive volatility, Governor Sanjay Malhotra reiterated on Friday. His statement comes at a time when the rupee has been falling against the greenback and slipped past the psychological 90 to the dollar mark this week.
The rupee had been falling consistently amid a sustained sell-off in equity markets by foreign institutional investors. That apart, the high 50 per cent tariffs levied by the US administration, which has put Indian exports at a disadvantage and the continued delays in the announcement of a trade deal between India and the US have also continued to weigh on the rupee. In this backdrop, the rupee has slipped over 5 per cent in 2025 and had touched a lifetime low of 90.43 against the US dollar this week, before recovering on Thursday.
On Friday, the rupee had opened on a positive note, but slipped again after the Reserve Bank of India’s monetary policy committee reduced the benchmark repo rate by 25 basis points to 5.25 per cent.
RBI Governor Malhotra on Friday sort of played down the slump, and stated that it was the markets that determined the rates and that the RBI doesn’t target any specific level.
“Our stated policy has been that we allow the markets to determine the prices; we don’t target any price levels. We believe the markets in the long run are very efficient,” said Malhotra.
He noted that fluctuations in the rupee-dollar movement do happen, pointing out that earlier in February, the rupee had fallen to almost 88, and in about three months, it had come back to around 84.
“Our effort has always been to reduce any abnormal or excessive volatility, and that is what we will continue to endeavour,” he stressed.
He also pointed out that India’s external sector remained strong, foreign exchange reserves were sufficient, a manageable current account and given the strong fundamentals of the country, going forward, capital flows should also be good.
“We are in a comfortable situation insofar as the external sector position is concerned,” opined Malhotra.
As of November 28, India’s forex reserves stood at $686.2 billion, providing an import cover of more than 11 months.
Earlier in the day, the RBI announced plans to infuse liquidity in the system to the tune of ₹1.45 lakh crore, which would include $5 billion through a US dollar-rupee swap.
Malhotra clarified in a post-policy conference that the dollar-rupee swap was more of a liquidity measure and not to support the falling rupee.
He reiterated that the MPC decisions were mostly driven by the growth-inflation dynamics, given that India’s economy was mostly domestically driven and exports accounted for a small percentage of the GDP. Therefore, looking at the growth-inflation dynamics, the decision was taken to reduce the repo rate by 25 basis points.
Recently, the International Monetary Fund (IMF) had reclassified India’s exchange rate regime, labelling it as a “crawl-like arrangement” versus its earlier “stabilise” classification.
Essentially, maintaining a crawl-like arrangement means the exchange rate moves gradually within a narrow margin of say around 2 per cent. Poonam Gupta, deputy governor of the RBI, said there wasn’t much to read into this classification and that India was managing its forex just like many other emerging markets were.
“What the IMF does, and others do is they put the exchange rate into three different categories. Only a handful of countries have a fixed exchange rate; most advanced economies have a free-float, and all emerging economies have shades of managed float. This is what India practices. Within the managed float, which is that RBI tries to curb undue volatility on each side of a reasonable level, IMF looked at past six months of data and found this volatility to be contained in a range and based on that they have the sub-classification, which is called crawling peg,” Gupta explained.
