Mumbai — Reserve Bank of India Governor Sanjay Malhotra said the rupee may be undervalued despite persistent market expectations of further depreciation, arguing that financial markets can behave irrationally in the short term.
Speaking at a post-policy press conference following the Monetary Policy Committee’s latest decision, Malhotra said market positioning and currency forecasts do not always reflect a currency’s underlying value.
“Only in the long run are markets able to find the right value,” he said in response to a question about the continued depreciation bias reflected in currency surveys and hedging activity.
Malhotra said several valuation measures, including the real effective exchange rate, suggest the rupee is not overvalued and may in fact be undervalued.
“By a number of estimates, including the REER, rupee is not overvalued, may be undervalued,” he said.
His remarks came amid questions about why market participants continue to expect weakness in the rupee despite India’s ability to attract foreign capital inflows when needed.
Analysts have pointed to hedging patterns and currency forecasts that indicate expectations of further depreciation in the local currency.
The comments followed the RBI’s latest monetary policy review, in which the MPC voted to raise the benchmark repo rate by 25 basis points to 5.50 percent.
The August 2026 policy meeting had marked the fourth consecutive review in which the central bank kept both the repo rate and its neutral policy stance unchanged.
The RBI had also held rates steady in June, April and February 2026 after cutting the repo rate by 25 basis points in December 2025 to 5.25 percent.
Before that reduction, the central bank had maintained the benchmark lending rate at 5.50 percent in its October 2025 policy review.
Following Wednesday’s rate increase, the standing deposit facility rate was adjusted to 5.25 percent, while the marginal standing facility rate and bank rate were set at 5.75 percent. (Source: IANS)
