RBI doesn't target any specific level of rupee: RBI Gov Sanjay Malhotra

Inflation targeting framework improved credibility, transparency of monetary policy

The central bank does not target any specific level for the rupee, and the currency value is guided by market forces and macroeconomic fundamentals, said Sanjay Malhotra, governor of the Reserve Bank of India, on Wednesday.

 

While speaking at the International Monetary Fund’s Governor Talks session in Washington D.C., Malhotra said that the RBI’s role is limited to ensuring orderly movements and preventing volatility rather than defending any particular price band.

 

“We do not target any price level or any price band and let, you know, the markets actually in India are quite deep, quite wide, and we have a very robust and mature market. So we believe in, you know, the markets to decide, you know, what the level should be,” he said.

 

 

“Our effort really is to ensure that there is an orderly movement of the rupee, both sides, and any undue or any abnormal volatility is curbed.”

 

Malhotra added that exchange rate levels are determined by underlying fundamentals, including capital and current account flows.

 

“Levels are going to be decided, you know, by the macroeconomic fundamentals, the capital flows, more importantly, you know, the current account flows.”

 

The Governor further said that India’s macroeconomic fundamentals remain resilient despite global headwinds, citing strong external balances and improved domestic financial health.

 

“Indian macroeconomic fundamentals are very strong, very strong, yeah, as those, you know, who are following India would be knowing, on the current account we have a deficit of only about 1 per cent on an average. Last year it was only about 0.6 per cent or so of GDP,” he said.

 

He also pointed to a significant turnaround in the financial system, highlighting that both banks and corporates are now well-capitalised and ready to invest.

 

“We had a twin balance sheet problem, as some of you would be aware, both, you know, the corporates and the banks. And now, in fact, you know, both of them are very healthy. Corporates as well as banks are flushed with funds, waiting, you know, for investment.”

 

Discussing India’s growth outlook, Malhotra said that the current pace of expansion, though strong, remains below the country’s long-term development ambitions.

 

“6.8 percent, of course, you know, much below our aspirational levels of growth, you know, Viksit Bharat 2047.”

 

He noted that while higher tariffs have been accounted for in projections, India’s domestic demand-driven structure limits their overall impact.

 

“Yes, we have, you know, in our projections actually taken into account the higher tariffs as the baseline. But negotiations, you know, are on. Even today, there is a team over here. So I met the team in the morning over breakfast. They are over here, you know, discussing with the U.S. authorities. See, India is mostly a domestic-driven economy. So while we are impacted, you know, by the higher tariffs, it's not a matter of huge concern,” he said.

 

The Governor said that India’s flexible inflation targeting framework, introduced in 2016, has enhanced transparency and credibility in monetary policy while maintaining coordination with fiscal authorities.

 

“In 2016, there was an amendment to our act, to the RBI Act, which provided for this framework of flexible inflation targeting. We call it flexible because our target is given to us by the government, the framework is decided by the parliament, the target is given by the government.”

 

“It has served us well, you know, these nine, ten years that we have now had flexible inflation targeting. It's now subject to more public scrutiny, first of all, and so that makes it more credible, more transparent, and provides, you know, that legitimacy.”

 

He added that inflation outcomes have improved meaningfully since the adoption of the framework.

 

“Post FIT, inflation has been lower. Of course, it's not only monetary policy, as I mentioned earlier, it's been good coordination with fiscal authorities. But inflation on average has come down by about 2 percent, which is not less, 4.9 percent, which is well within, you know, our band from 6.8 percent pre-FIT.”