No Fixed Level for Rupee, Market Forces Determine Forex Rate: RBI Governor

RBI: No Target Level for Rupee, Market Determines Exchange Rate

New Delhi: Reserve Bank of India (RBI) Governor Sanjay Malhotra reaffirmed that the Indian rupee’s exchange rate against the US dollar is determined by market forces, and the central bank does not target any specific level or band.

Speaking after the RBI Board meeting with Finance Minister Nirmala Sitharaman, Malhotra emphasized that the central bank focuses on the rupee’s medium- to long-term stability rather than its day-to-day fluctuations.

“There is no change in RBI’s approach. We do not look at any specific price level or band. Our focus is to curb excessive volatility in the forex market. One should not be overly concerned with daily exchange rate movements,” Malhotra stated.

Highlights from RBI’s Statement

• Rupee Exchange Rate: Determined by market forces, not RBI intervention.
• No Target Level: RBI does not maintain any fixed range or band for the rupee.
• Impact of Rupee Depreciation on Inflation: 5% depreciation leads to a 30-35 basis point (bps) rise in domestic inflation.
• Rupee-Dollar Rate Considered in Economic Projections: RBI factors in current forex rates when making growth and inflation forecasts.
• Liquidity Management: RBI to use multiple instruments to ensure sufficient liquidity in the banking system.

Rupee Recovers Slightly After Hitting All-Time Low

On Friday, the Indian rupee recovered 9 paise from its record low, closing at ₹87.50 per US dollar. This came after the RBI reduced the key policy rate by 25 basis points, a move aligned with market expectations.

According to Malhotra, the recent depreciation of the rupee has been driven by global uncertainties, particularly the tariff-related announcements by US President Donald Trump.

“These uncertainties should settle over time, contributing to a downward trend in inflation,” he added.

RBI’s Strategy for Forex & Liquidity Management

Malhotra reassured that RBI will remain “nimble and agile” in managing liquidity, utilizing various tools such as:

• Open Market Operations (OMO)
• Forex buy-sell swaps
• Liquidity Adjustment Facility (LAF)
• Variable Rate Repo (VRR)

RBI aims to ensure adequate liquidity in the banking system while maintaining economic stability.

RBI’s View on Cryptocurrencies

On the topic of cryptocurrency regulation, Malhotra revealed that the government has set up a working group to examine key crypto-related issues.

A discussion paper on cryptocurrencies will soon be released to gather public and industry feedback before implementing any formal regulatory framework.

RBI Board Meeting: Key Discussions & Budget 2025-26 Insights

The RBI’s 613th Board meeting also covered:

• Global & domestic economic outlook
• Impact of geopolitical developments on financial markets
• Condolence resolution for former PM & RBI Governor Manmohan Singh

Finance Minister Nirmala Sitharaman presented the vision of Union Budget 2025-26, emphasizing:

• Fiscal prudence & economic growth
• Policies aligned with “Viksit Bharat” (Developed India) vision
• Strengthening India’s financial sector

RBI Directors commended the Finance Minister on the Budget’s direction and shared their insights.

Final Thoughts

The RBI’s policy stance reinforces that forex market forces determine the rupee’s value, while the central bank intervenes only to curb excessive volatility. With global uncertainties easing, the rupee’s stability could improve, supporting inflation control and economic growth.

Stay updated on forex market trends, RBI policies, and economic developments for better financial planning.