Reserve Bank of India Governor Sanjay Malhotra has provided clarity on the central bank's exchange rate policy, emphasizing that there are no predetermined target levels for the Indian rupee, including the widely discussed 90-91 range against the US dollar. Speaking exclusively to NDTV Profit, Malhotra outlined the RBI's intervention philosophy and India's macroeconomic position amid ongoing global uncertainties.

Exchange Rate Policy Framework

The RBI Governor categorically stated that the central bank does not pursue or target any specific price level or band for the rupee. Instead, the institution's approach centers on maintaining financial stability and ensuring orderly currency movements. Malhotra explained that RBI interventions occur exclusively to address undue or excessive volatility, regardless of whether the currency faces sharp depreciation or appreciation pressures.

India's Macroeconomic Fundamentals

Malhotra highlighted several key indicators that demonstrate India's economic resilience. The country maintains foreign exchange reserves of approximately $690 billion (₹57,50,000 crores), providing substantial buffer against external shocks. Additionally, India continues to experience high growth rates while maintaining relatively low inflation levels and a manageable current account deficit.

"On the whole, on the external front, we are very comfortable," Malhotra stated, while acknowledging that currency movements naturally involve fluctuations rather than linear progression.

Historical Rupee Performance Analysis

The Governor provided context for recent rupee movements by examining longer-term trends. Over extended periods, the rupee has depreciated by approximately 3.00% annually on average, which Malhotra described as natural given India's typically higher inflation rates compared to advanced economies.

The current calendar year has seen approximately 5.00% rupee depreciation compared to 2.50% in the previous year, resulting in a combined average of around 3.50% over the two-year period.

Economic Outlook and Assessment

Malhotra characterized the current phase of India's economy as a "Goldilocks" phase, indicating an optimal balance between economic growth and stability. This assessment reflects the country's ability to maintain robust economic performance while managing inflationary pressures and external sector challenges effectively.

The Governor reiterated that RBI's intervention strategy remains unchanged, with no intention to defend specific exchange rate levels such as 90 or 91 rupees per dollar. The central bank's actions will continue focusing exclusively on preventing abnormal or excessive currency movements in either direction, allowing market forces to determine the rupee's fundamental value.

India's exchange rate policy framework has maintained consistency over recent years, balancing market-determined pricing with regulatory oversight to ensure financial stability. This approach has enabled the country to navigate various global economic challenges while preserving macroeconomic stability and supporting sustained economic growth.

Source: https://www.ndtvprofit.com/markets/no-red-line-for-the-rupee-at-90-or-91-says-rbi-governor-profit-exclusive

The Indian rupee declined 4 paise to close at 90.21 against the US dollar on Tuesday, weighed down by multiple headwinds including higher crude oil prices, a firm American currency, and persistent foreign fund outflows. The currency faced additional pressure from ongoing geopolitical tensions and weakness in domestic equity markets.

Trading Session Performance

The rupee's trading session reflected the challenging market conditions. The currency opened at 90.24 at the interbank foreign exchange and touched an intraday low of 90.30 against the greenback before settling at the day's closing level.

This decline came after the rupee had gained 1 paisa on Monday to close at 90.17 against the US dollar, indicating a reversal in the currency's short-term momentum.

Market Pressures and Analysis

Anuj Choudhary, Research Analyst at Mirae Asset ShareKhan, attributed the rupee's decline to ongoing geopolitical tensions and global risk aversion. The analyst highlighted several key factors impacting the currency, including weak domestic markets, foreign institutional investor outflows, and a surge in crude oil prices.

Despite these challenges, Choudhary noted potential support factors for the rupee. Optimism surrounding the India-US trade deal and rising expectations of a US rate cut following weak labor market reports could provide stability at lower levels. The analyst also mentioned that central bank intervention might support the currency, with traders now focusing on upcoming US inflation data.

Global Market Conditions

The broader market environment reflected the challenging conditions for emerging market currencies. The dollar index, which measures the greenback's strength against six major currencies, was trading 0.07% higher at 98.69, indicating continued strength in the US currency.

Commodity markets added to the rupee's pressure, with Brent crude oil prices rising significantly:

Trade Deal Optimism

Market sentiment received some support after the new US envoy to India, Sergio Gor, indicated on Monday that both countries are actively engaged in finalizing a trade deal. This development provided some optimism to forex analysts, though it was insufficient to offset the broader negative pressures on the rupee.

Domestic Market Performance

The domestic equity markets reflected the overall risk-off sentiment, with both major indices closing in negative territory:

Foreign institutional investors continued their selling pressure, offloading equities worth ₹3,638.40 crore on Monday according to exchange data, contributing to the overall negative sentiment in financial markets.

Economic Data Updates

Recent economic data provided mixed signals for the Indian economy. Government data released on Monday showed India's retail inflation rose to a three-month high of 1.33% in December, primarily driven by higher food prices, though it remained below the Reserve Bank of India's lower tolerance level.

On the fiscal front, the Income Tax Department reported encouraging direct tax collection figures. The government's net direct tax collection grew approximately 8.82% to over ₹18.38 lakh crore in the current fiscal year till January 11, supported by slower refunds and improved corporate tax collection.

Outlook and Trading Range

Looking ahead, Choudhary expects the USD-INR spot price to trade in a range of 90.10 to 90.70, with traders closely monitoring US inflation data for further direction. The currency's performance will likely depend on the balance between negative factors such as crude oil prices and foreign fund outflows, and positive developments including potential trade deal progress and US monetary policy expectations.