Business · India Bureau
Rupee likely undervalued despite market volatility, RBI chief says
Reserve Bank of India Governor Sanjay Malhotra has suggested the rupee may be trading below its intrinsic value, even as financial markets exhibit short-term irrationality. The assessment is based on real effective exchange rate metrics and other fundamental measures.
LSN India ·
The Reserve Bank of India's top official has weighed in on currency valuation debates, indicating that the rupee appears undervalued when measured against economic fundamentals. RBI Governor Sanjay Malhotra acknowledged that financial markets often behave irrationally over shorter time horizons, creating disconnects between asset prices and their true worth.
Malhotra's comments reflect a nuanced view of rupee movements, recognizing that while day-to-day market swings may not reflect underlying economic conditions, longer-term assessments paint a different picture. The RBI chief pointed to the real effective exchange rate (REER), a key metric that adjusts the rupee's value against a basket of trading partners' currencies for inflation differentials, as evidence supporting the undervaluation thesis.
The REER and related indicators suggest the rupee's recent weakness does not align with India's economic fundamentals and relative performance compared to peer economies. Such assessments typically inform central bank policy decisions regarding currency intervention and broader monetary considerations.
The remarks come amid persistent volatility in currency markets across the region, with investors grappling with shifting global interest rate expectations and capital flow dynamics. Malhotra's intervention underscores the RBI's continued monitoring of exchange rate movements and its readiness to address any significant misalignment between market prices and underlying economic realities.