Reserve Bank of India (RBI) Governor Sanjay Malhotra has reaffirmed that the central bank remains focused on the long-term stability of the rupee rather than its daily fluctuations against the US dollar. Speaking after a board meeting with Finance Minister Nirmala Sitharaman on Saturday, Malhotra emphasized that market forces dictate the currency’s value, and the RBI’s role is to ensure stability without targeting specific price levels.
“There is no change in RBI’s approach. It does not look at any price level or band. It is our endeavour to curb excessive volatility. We should not be looking at daily movement or exchange rate,” he stated in response to concerns about the rupee’s depreciation.
Impact on Inflation and Policy Adjustments
Discussing the depreciation’s impact, Malhotra noted that a 5% fall in the rupee’s value could contribute to a 30-35 basis points (bps) rise in domestic inflation. He reassured that the RBI had factored in the rupee-dollar exchange rate while forecasting growth and inflation for the upcoming fiscal year.
On Friday, the rupee rebounded by 9 paise, closing at 87.50 against the dollar after the RBI cut the key policy rate by 25 bps, aligning with market expectations.
Global Uncertainties and Tariff Concerns
Malhotra attributed much of the rupee’s recent depreciation to global uncertainties, particularly the tariff-related policies of US President Donald Trump. He expressed hope that once these uncertainties settle, inflationary pressures would ease.
“…hopefully that should settle down and that should help us in the downward movement of inflation,” he remarked.
RBI’s Liquidity Management Strategy
Assuring financial markets, Malhotra stated that the RBI remains “nimble and agile” in managing liquidity. The central bank employs multiple tools, including Open Market Operations (OMO), forex buy-sell swaps, Liquidity Adjustment Facility (LAF), and Variable Rate Reverse Repo (VRR), to maintain sufficient liquidity in the banking system.
“We have a number of instruments at our hands to control and manage liquidity and we will use them. We need not be worried on that account,” he said.
Crypto Regulations Under Review
On cryptocurrency regulation, Malhotra confirmed that the government has set up a working group to examine crypto-related issues. A discussion paper on crypto assets is expected to be released soon.
Meanwhile, an official RBI statement noted that the Central Board of Directors had reviewed the global and domestic economic landscape, assessing challenges arising from geopolitical developments and financial market volatility.
