In a significant statement clarifying the Reserve Bank of India's approach to currency management, Governor Sanjay Malhotra has stated that the central bank does not target any specific band or level for the Indian rupee against the US dollar. This insight provides crucial transparency into the RBI's foreign exchange policy framework.
RBI's Stance on Rupee Flexibility
Governor Malhotra, speaking on 05 December 2025, emphasized a policy of non-intervention regarding a predetermined valuation for the national currency. He stressed that the RBI's actions in the foreign exchange market are not aimed at defending or achieving a particular numerical level for the rupee. Instead, the central bank's focus lies in ensuring orderly market conditions and preventing excessive volatility that could harm economic stability.
The Governor articulated that the RBI allows "the rupee to find its correct position, correct level." This philosophy underscores a market-determined exchange rate regime, where the rupee's value is influenced by fundamental economic factors, global market flows, and overall dollar strength, with the RBI stepping in primarily to curb disruptive swings.
Implications for Forex and Financial Markets
This clear communication from the top of India's monetary authority has immediate implications for traders, investors, and businesses. It signals that market participants should not anticipate the RBI to rigidly defend any specific psychological level, such as 83 or 84 against the dollar, through heavy intervention. The central bank's toolkit is reserved for smoothing erratic movements, not setting a long-term price target.
This approach offers several advantages:
- Market Efficiency: It allows the exchange rate to act as a shock absorber, adjusting to reflect changing economic realities.
- Policy Credibility: It builds RBI's credibility by avoiding a perceived "line in the sand" that could be tested by speculative forces.
- Focus on Fundamentals: It directs attention to underlying economic indicators like inflation, growth, and the current account deficit, which ultimately drive currency value.
Context and Future Outlook
The statement comes at a time when global currency markets are experiencing significant flux due to divergent monetary policies among major central banks and geopolitical uncertainties. The US dollar's strength has pressured emerging market currencies, including the rupee. By outlining this hands-off philosophy on a specific level, Governor Malhotra provides clarity that the RBI's interventions will be measured and situational.
For importers and exporters, this policy underscores the importance of robust forex risk management strategies, as the rupee will continue to exhibit two-way movement based on market dynamics. The RBI's role, as clarified, is that of a vigilant overseer ensuring these movements are orderly, rather than a director setting a fixed course for the currency's value against the US dollar.
