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RBI says rupee may be undervalued: What does this mean for the currency?

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RBI says rupee may be undervalued: What does this mean for the currency?

RBI says rupee may be undervalued: What does this mean for the currency?

In a post Monetary Policy press conference, RBI governor Sanjay Malhotra said that by a number of estimates, including the REER (real effective exchange rate), rupee is not overvalued, may be undervalued.

Summary points RBI says the rupee is not overvalued and may be undervalued, giving it room to let the currency adjust while managing excessive volatility. Rupee weakness can boost export competitiveness, but higher costs of imported crude, raw materials and other inputs can offset the gains. RBI intervention is likely to focus on curbing disorderly movements rather than defending a specific exchange-rate level. The rupee’s direction will depend on oil prices, foreign capital flows, global dollar strength, interest-rate differentials and India’s external balance.

Reserve Bank of India (RBI) is expected to raise the repo rate by 25 basis points in October.

The Reserve Bank of India’s assessment that the rupee may be undervalued suggests the central bank does not see the currency as excessively strong despite its recent decline against the US dollar. The assessment could give the RBI more room to allow the rupee to adjust to external pressures while continuing to intervene to smooth excessive volatility rather than defend a particular exchange-rate level. In a post Monetary Policy press conference, RBI governor Sanjay Malhotra said that by a number of estimates, including the REER (real effective exchange rate), rupee is not overvalued, may be undervalued. Advt

“We will ensure that the rupee stabilises, that the rupee finds its correct value, and we will support an orderly movement of the rupee in finding its correct value and at the same time in ensuring that there is no excessive volatility,” he said.


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