RBI Governor Sanjay Malhotra Says Indian Rupee Is Undervalued

Governor Sanjay Malhotra Calls the Indian Rupee Undervalued

Reserve Bank of India Governor Sanjay Malhotra has delivered a rare public assertion regarding the country’s currency. In a recent interview, Malhotra stated that the Indian rupee is not overvalued and can be seen as undervalued. Answering a question from one of four journalists who interviewed him on July 26, 2026, the central bank head offered a clear assessment of the currency’s standing.

Sanjay Malhotra, RBI Governor, stated via The Hindu that he would like to reiterate that it would be reasonable to think the rupee is not overvalued, and that if anything, one could argue it has become undervalued both in nominal and in real effective exchange rate terms.

Financial markets have interpreted the central bank’s stance as an indication that recent depreciation does not reflect underlying economic strength. Central bankers typically avoid assigning fair values to currencies during periods of market volatility. Earlier, during a June 5, 2026, post-Monetary Policy press conference, Malhotra noted that it is reasonable to think that the rupee may not be overvalued in terms of the Real Effective Exchange Rate.

Global Pressures and Economic Fundamentals Behind the Depreciation

The central bank attributes the rupee’s recent weakness primarily to external shocks rather than domestic macroeconomic flaws. Persistent geopolitical tensions, elevated crude oil prices, a stronger U.S. dollar, and capital outflows from emerging markets have driven the currency down. Foreign portfolio investors have drained billions from the Indian stock market over the period, increasing dollar demand.

Despite these headwinds, India remains one of the fastest-growing major economies, posting growth above 6% year after year. Inflation has moderated from recent highs, and foreign exchange reserves remain substantial enough to cover 11 months of imports.

Foreign Bank Deposits and Market Relief From Falling Crude Prices

Supporting currency stability, Indian banks have mobilized nearly $32 billion, largely through Foreign Currency Non-Resident Bank deposits, as robust inflows continue. Malhotra emphasized that the central bank maintains its commitment to currency and financial stability, and that intervention focuses entirely on curbing excessive volatility.

Sentiment across Indian financial markets received a major boost following a sharp fall in crude oil prices. Brent crude plunged 8.92 per cent to about $89 a barrel after Iran indicated it would halt attacks as long as the United States refrained from military action. As the world’s third-largest crude importer, India benefits directly from lower oil prices through eased inflationary pressures and an improved current account position.

The relief in commodity markets propelled equities upward, helping the BSE Sensex rise 776 points to close at 76,836, while the Nifty climbed 228 points to end just short of the 24,000 mark. Domestic institutional investors helped add about ₹5.1 lakh crore to investors’ wealth despite foreign institutional investors remaining net sellers at ₹1,688 crore.

Impact on the Currency Market and Future Trajectory

The currency market responded immediately to the favorable macroeconomic backdrop and central bank assurances. The rupee recorded its biggest single-day gain in seven weeks, appreciating 68 paise to close at 95.88 against the dollar, up from its previous close of 96.56. Concurrently, the benchmark 10-year government bond yield eased five basis points to 6.78 per cent down from 6.83 per cent.