RBI Governor Says Rupee May Be Undervalued After 6% Fall; Flags $700 Billion In Reserves

The Indian Rupee (INR) is not overvalued and could in fact be undervalued after its recent decline, RBI Governor Sanjay Malhotra said in an interview with Mint.

The rupee has weakened more than 6% since the Iran war began, hitting a series of record lows, including an all-time low of 96.96 per dollar recently, as the ongoing US-Iran conflict pushes up crude prices and widens India's import bill.

The remarks are notable given that central bank governors rarely comment on currency valuation or signal preferred exchange rate levels.

What The RBI Governor Said

According to Malhotra, the recent depreciation makes it reasonable to conclude the rupee is no longer overvalued, and may have moved into undervalued territory, both in nominal terms and in terms of the real effective exchange rate (REER). A gauge measuring the rupee's competitiveness against other currencies stood at 90.96 in April, its lowest level since at least 2014. A reading below 100 indicates the currency may be undervalued against peers.

Malhotra reiterated that the RBI does not target any specific exchange rate level and would intervene only to curb abnormal volatility or undue speculation in the forex market. He added that the central bank has around $700 billion in reserves along with other tools at its disposal. According to him, the RBI will do whatever is required to ensure orderly price discovery in the forex market.

Balance Of Payments Not A Major Concern Yet

On India's external position, Malhotra said the balance of payments situation was not an undue concern at this stage, though it does require attention through coordinated efforts by the government, the RBI, and other institutions. Rising crude prices on account of the West Asia conflict have pushed up India's import bill, adding pressure on the current account.

Rupee Under Pressure From Multiple Sides

The rupee has been Asia's worst-performing currency so far this year, down over 6%. Beyond crude prices, equity outflows have added to the pressure, with foreign investors pulling out more than $23 billion from Indian markets this year, already surpassing last year's record. The currency has been falling to consecutive record lows as the psychological 100-per-dollar mark draws closer.

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Record Dividend Transfer To Government

Separately, the RBI has transferred an all-time high dividend of ₹2.86 lakh crore to the central government, providing a significant financial cushion as the government manages elevated energy prices and currency pressures at the start of FY27. The previous year's payout was approx. ₹2.69 lakh crore, and approx. ₹2.11 lakh crore the year before that. The transfer, while a record, came in at the lower end of analyst estimates.The RBI's next rate decision is scheduled for 3-5 June.

Sources:

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