RBI Governor Sanjay Malhotra Rebuts Rupee Pessimism Citing Resilient External Sector and Curbs Forex Speculation — October 13, 2026

The Reserve Bank of India (RBI) has pushed back against market gloom regarding the domestic currency, asserting that financial markets have become unduly pessimistic about the rupee despite India’s resilient external position. In an interview with Moneycontrol, RBI Governor Sanjay Malhotra underscored that India's balance of payments remains on solid footing, supported by durable underlying inflows.

The Governor’s comments arrive on the heels of the central bank's weekend move to tighten rules governing foreign exchange transactions to stamp out non-genuine and excessive speculative positioning.

Clamping Down on Intraday Currency Speculation

Explaining the rationale behind the RBI’s recent policy intervention, Malhotra pointed out that trading patterns in the domestic foreign exchange market had displayed unusual behavior rather than genuine commercial hedging.

“Over the past few months, we have observed a very high proportion of trades being cancelled and rebooked on the same day,” Malhotra noted. “In some cases, about one-third of trades were closed or cancelled on the day they were entered into.”

The new regulatory measures are specifically aimed at ensuring market activity is anchored in authentic hedging requirements:

• Deterring one-sided speculative wagers and high-frequency cancellation-rebooking patterns in spot and forward segments.
• Fostering an orderly market mechanism while curbing speculative trades that trigger intraday foreign exchange distortion.
• Preserving liquidity access for corporate hedgers and legitimate foreign exchange participants without imposing artificial barriers.

Following the central bank's move, the domestic currency rebounded sharply, trading at 95.77 against the US dollar on Monday before settling around 95.28 on Tuesday.

No Fixed Exchange Rate Target

The Governor reaffirmed the RBI’s longstanding operating framework, clarifying that the monetary authority does not defend any predetermined exchange rate or narrow price band. Instead, the exchange rate remains determined by market forces, with the central bank intervening exclusively to dampen excessive and abnormal volatility.

“The RBI's objective is to ensure orderly movements and prevent excessive speculation, rather than influence the rupee towards a predetermined level,” Malhotra explained.

He added that while financial markets can occasionally turn irrational and misprice assets over the short run, long-term trends reflect economic reality. Malhotra highlighted that, based on several benchmarks—including the Real Effective Exchange Rate (REER)—the rupee is not overvalued and may in fact be undervalued relative to its medium-term fundamentals.

Resilient External Fundamentals

Addressing broader concerns over external vulnerability, the RBI chief emphasized that India's external accounts possess significant durability.

Key Pillars of India's External Strength:

• Healthy Remittance Inflows: Private transfers from non-resident Indians remain among the highest globally, providing consistent foreign exchange support.
• Resilient Services Exports: Technology, software, and global capability center (GCC) exports continue to register robust receipts, substantially offsetting merchandise trade deficits.
• Foreign Direct Investment (FDI): Inbound FDI flows remain healthy, driven by multi-year capital commitments in manufacturing, infrastructure, and services.
• Manageable Current Account Deficit: Strong invisible receipts continue to keep the current account deficit within easily sustainable thresholds.

Malhotra reiterated his confidence that the Indian government and the corporate sector have repeatedly proved their capacity to navigate external macro headwinds. For domestic equity and debt investors, the RBI's clear communication offers reassurance that the central bank possesses the tools, reserves, and regulatory intent to keep foreign exchange markets stable without resorting to panic-driven measures.

Tags: Reserve Bank of India Indian Rupee Forex Market Sanjay Malhotra External Sector Balance of Payments