Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday that financial markets can behave irrationally in the short term and suggested that several indicators show the rupee may remain undervalued rather than overvalued.
Speaking at a post-policy press conference after the Monetary Policy Committee (MPC) meeting, Malhotra said market perceptions and currency positioning do not always reflect a currency’s underlying value.
“Only in the long run are markets able to find the right value,” he said in response to a question about the continued depreciation bias reflected in currency surveys and hedging activity.
The RBI Governor pointed to several measures used to assess currency valuation, including the real effective exchange rate (REER), and said they indicate that the rupee does not look overvalued.
“By a number of estimates, including the REER, rupee is not overvalued, may be undervalued,” Malhotra said.
His remarks came as market participants continued to expect weakness in the rupee despite India’s ability to attract foreign capital inflows when required.
Analysts have also highlighted hedging patterns and currency forecasts that point to expectations of further depreciation in the domestic currency.
The comments followed the RBI’s latest monetary policy review, in which the MPC voted to raise the benchmark repo rate by 25 basis points to 5.50 per cent.
The August 2026 policy review had marked the fourth consecutive meeting in which the central bank kept the repo rate unchanged at 5.25 per cent and maintained its neutral stance.
The MPC had also kept rates unchanged in June, April and February 2026 after cutting the repo rate by 25 basis points in December 2025 to 5.25 per cent.
Before the December rate cut, the central bank had maintained the benchmark rate at 5.50 per cent in its October 2025 review.
Meanwhile, the MPC, led by Governor Sanjay Malhotra, announced a 25-basis-point increase in the key policy rate earlier on Wednesday, taking the repo rate to 5.50 per cent amid a challenging global environment.
The RBI also raised the standing deposit facility (SDF) rate to 5.25 per cent and increased the marginal standing facility (MSF) rate and bank rate to 5.75 per cent.