Rupee undervalued; RBI will ensure stability in INR, helping it find its correct value

Stating that the rupee may be "undervalued" as per many estimates, Governor Sanjay Malhotra on Wednesday assured that the Reserve Bank of India will ensure that the currency "stabilises" and will support it in reaching its "correct value".

Speaking to reporters on a day that saw the local currency inching towards all-time low against the dollar, Malhotra noted that while markets can be "irrational" in the short term, they reflect their right value in the long run.

"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," the Governor told reporters at the central bank headquarters here.

He was replying to a specific question about the rupee inching towards its all-time low of 96.96 against the dollar, during intraday trading on Wednesday.

It can be noted that the domestic currency has been under pressure for much of this year, especially since the beginning of the West Asia conflict in late February, resulting in a spike in crude oil prices, which poses a direct challenge to an oil-importing country like India.

To counter the fall the RBI introduced a concessional swap facility for diaspora deposits and bond issuances. Banks have mobilised nearly USD 133 billion under the FCNR(B) deposits facility alone, which lifted the pressure on the currency in the markets for a few days. However, the currency is back under pressure and has depreciated in the last few sessions.

"By a number of estimates, including the REER (Real Effective Exchange Rate), the rupee is not overvalued; it may be undervalued," Malhotra said on Wednesday.

The remarks follow similar comments from Deputy Governor Poonam Gupta on September 24, who opined that there is a case for the rupee to stabilise and appreciate from here on.