Why does RBI seem to believe that rupee is ‘undervalued’? | Explained
RBI Governor Sanjay Malhotra has suggested that the Indian rupee is currently undervalued in both nominal and real effective exchange rate terms. While he clarified that the central bank does not target a specific exchange rate, his comments reflect a view that recent depreciation does not align with India's economic fundamentals.
Why it matters
Central bank commentary on currency valuation is rare and influences market sentiment regarding future monetary policy and foreign investment flows.
The story so far: The Reserve Bank of India (RBI) Governor Sanjay Malhotra , in a recent interview with Business Line , reiterated that the Indian rupee is “undervalued”. This has drawn attention because central bankers rarely comment on whether a currency is priced fairly. Answering a question from one of the four journalists who on Sunday (July 26, 2026) interviewed him, Mr Malhotra reportedly said, “I would like to reiterate that it would be reasonable to think that the rupee is not overvalued. If anything, one could argue that the rupee has become undervalued both in nominal and in REER (real effective exchange rate) terms.”
He added that the RBI does not target any specific exchange rate or band for the rupee.
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