'We allow market to determine price': RBI Guv Malhotra on INR depreciation

RBI Governor Sanjay Malhotra said the central bank does not target exchange-rate levels and intervenes only to curb abnormal volatility

The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday responded to questions on the central bank's role in arresting the downslide of rupee, saying it allows markets to determine the price. His comments came as the national currency recently hit an all-time low, falling to the 90-mark against the dollar on Wednesday.

 

Speaking during the post-monetary policy press conference, the RBI Governor said, "We don’t target any specific price levels or bands. We let markets function; they are very deep and efficient. We just let the rupee find its correct position, correct level." 

 

 

He added that in February, the rupee vs dollar index climbed to 88, and within three months, it came back to 84. "These kinds of movements can happen. Our aim is to reduce any abnormal volatility. The external sector is also very strong going forward. We have sufficient reserves and are likely to get capital flows. We are in a very comfortable position as far as the external sector is concerned," Malhotra said.

 

In its December 2025 policy review, the RBI said it will conduct Open Market Operation (OMO) purchases of government securities worth ₹1 trillion and a three-year dollar–rupee buy/sell swap of $5 billion to inject further durable liquidity into the financial system.

'Have to focus on transmission'

Earlier today, the RBI Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent in the December policy meeting. The latest cut came after a pause for two consecutive meetings. 

 

When asked about further rate cuts, the Governor said, "Now we have to concentrate on policy rate transmission to the economy."

Targetting 4% inflation: Malhotra

When asked about low inflation levels, Malhotra said, "Inflation at 0.2 per cent is not the right level; we target to achieve 4 per cent." He added that the RBI has factored in the rupee at current levels in inflation estimates.

 

The retail inflation, measured by the Consumer Price Index (CPI), cooled to 0.25 per cent in October due to record-low food prices and the impact of the recent Goods and Services Tax (GST) cuts, which eased prices across several sectors.  

 

In its December policy meeting, the RBI further lowered the inflation forecast for FY26, bringing it down to 2 per cent from 2.6 per cent forecasted in October. The lower projections came on the back of falling food prices.

Growth likely to soften

The RBI also revised its growth forecast upward to 7.3 per cent for FY26, compared to 6.8 per cent projected in the October policy meeting. Explaining why the RBI expects growth to soften, Deputy Governor Poonam Gupta said that current growth levels are very high, and some moderation is natural as base effects come into play. Malhotra added, "Some of it is also export-led. Earlier, we reduced the growth rate based on high tariff impact on several sectors such as textiles, shrimps, etc."