RBI lets the rupee find its own level, Governor says
On December 5, Reserve Bank Governor Sanjay Malhotra made it clear that the central bank does not peg the rupee to any specific band in the foreign exchange market. Instead, the RBI allows the currency to discover its appropriate level through market forces, stepping in only when needed to ensure orderly conditions.
What the governor said
“We do not target any band for the rupee,” the governor said, stressing that intervention is not aimed at keeping the currency within an artificial range. The central bank’s approach focuses on flexibility while maintaining stability in the forex market.
Why this matters
- Market confidence: A clear stance reduces uncertainty by signalling that the RBI prefers a market-determined exchange rate.
- Business planning: Exporters and importers can better plan hedging and pricing when they know the RBI won’t force the currency into a fixed band.
- Inflation and interest rates: Exchange-rate stability indirectly supports the RBI’s broader goals for inflation control and monetary policy.
Practical implications for firms and investors
Companies that deal with cross-border trade may see fewer unexpected currency interventions, but they should still prepare for normal volatility. Investors should watch economic data and global market moves, since the RBI’s role is to smooth extreme swings rather than set a permanent level.
What to watch next
- Forex market volatility around major global events.
- RBI comments on intervention thresholds or occasional operations to ensure orderly markets.
- Domestic economic indicators that could influence exchange-rate trends.
Overall, the governor’s statement signals a preference for a flexible exchange rate regime where the rupee’s value is shaped largely by market forces, with the central bank acting as a stabiliser when required.