RBI Governor Sanjay Malhotra Rebuts Rupee Pessimism, Emphasises Strong External Fundamentals — October 13, 2026

Reserve Bank of India (RBI) Governor Sanjay Malhotra dismissed the prevailing gloom in currency markets, asserting that market participants are being overly pessimistic about the rupee. In an interview with Moneycontrol, Malhotra reaffirmed his optimism about India's medium- and long-term balance of payments (BoP) position, noting that underlying macroeconomic fundamentals remain sound even as global headwinds exert pressure on emerging market currencies.

“The exchange rate is primarily a function of demand and supply. Markets today appear to be overly pessimistic, and that is why I said their assessment could be irrational in the short run,” Malhotra stated. He reiterated that the RBI does not defend any predetermined level or band for the rupee, allowing market forces to drive price discovery while intervening strictly to prevent disorderly moves and excessive volatility.

Cracking Down on Intra-Day Speculation

The Governor’s remarks follow a series of operational measures introduced by the central bank on October 10 aimed at curbing one-sided bets in the foreign exchange market. Addressing concerns that these regulatory curbs amount to capital controls, Malhotra clarified that the actions were specifically designed to discourage reckless speculative behavior rather than restrict genuine corporate hedging.

Data examined by the banking regulator indicated an unusually high churn in derivatives and spot transactions, prompting the regulatory pushback:

• A very high proportion of foreign exchange trades were being cancelled and rebooked on the exact same day.
• In several instances, approximately one-third of all contract volumes were closed or cancelled on the day of entry.
• Market participants were treating currency trades with speculative intraday tactics akin to equity market trading rather than using foreign exchange contracts for risk mitigation and commercial hedging.

Following the central bank's measures, the rupee showed signs of stabilization, opening at 95.18 against the US dollar compared to the prior session's close of 95.77, before settling around 95.28 per dollar.

External Buffers and Valuation Metrics

Defending the intrinsic strength of the domestic currency, Malhotra pointed to multiple balance sheet indicators suggesting that the rupee is far from fundamentally weak. Drawing on standard valuation metrics such as the Real Effective Exchange Rate (REER), the Governor noted that the currency is not overvalued and, by several models, trades at an undervalued level.

Key Pillars Supporting India’s External Sector:

• Inward Remittances: Inflows from the Indian diaspora continue to demonstrate strong resilience, providing steady foreign currency liquidity.
• Services Exports: Software and business services receipts have sustained positive momentum, helping bridge the merchandise trade deficit.
• Foreign Direct Investment (FDI): Long-term foreign capital commitments remain healthy and are expected to anchor the capital account over the coming quarters.

Malhotra emphasized that both the government and the central bank possess ample policy tools and determination to safeguard external resilience, assuring market participants that the RBI will take whatever actions are necessary to ensure an orderly, stable foreign exchange environment.

Tags: Reserve Bank of India Indian Rupee USDINR Foreign Exchange Sanjay Malhotra