The rupee may be “undervalued” as per many estimates, Reserve Bank of India Governor Sanjay Malhotra said on Wednesday, and assured that the banking regulator will support the currency to reach its “correct value”.
Speaking to reporters on a day that saw the rupee inch towards an all-time low against the dollar, Malhotra said that while markets can be “irrational” in the short term, they reflect their right value in the long run.
“By a number of estimates, including the REER (Real Effective Exchange Rate), the rupee is not overvalued; it may be undervalued,” Malhotra told reporters at the RBI headquarters in Mumbai. “We will ensure that the rupee stabilises, that the rupee finds its correct value, and we will support an orderly movement of the rupee in finding its correct value and at the same time in ensuring that there is no excessive volatility.”
The rupee has been under pressure for much of this year, especially since the beginning of the West Asia conflict in late February, resulting in a spike in crude oil prices, which poses a direct challenge to an oil-importing country like India.
To counter the fall, the RBI introduced a concessional swap facility for diaspora deposits and bond issuances. Banks have mobilised nearly $133 billion under the FCNR(B) deposits facility alone, which lifted the pressure on the currency in the markets for a few days. However, the currency is back under pressure and has depreciated in the last few sessions.