Rupee Trading Below Fundamental Value as Foreign Inflows Surpass $39 Billion
Reserve Bank Governor Sanjay Malhotra reports that aggressive capital measures have secured $32 billion through FCNR(B) deposits and $7 billion via government bonds. The central bank views the current rupee valuation as potentially undervalued despite external market pressures.
Capital Inflows and Currency Valuation
Reserve Bank of India (RBI) Governor Sanjay Malhotra indicates that India’s strategic push to attract foreign capital has yielded significant results, securing over $32 billion through Foreign Currency Non-Resident (Bank) deposits. An additional $7 billion has flowed into government securities since policy adjustments in June. Addressing the rupee’s recent performance, Malhotra dismissed concerns of fundamental weakness, suggesting the currency may actually be undervalued in both nominal and real effective exchange rate terms. He attributed recent fluctuations to dollar strength and geopolitical friction rather than domestic failings.
Foreign Exchange Safeguards and Liquidity
Responding to queries regarding the costs of hedging fresh FCNR(B) deposits and providing concessional swaps for public sector external borrowings, Malhotra asserted that the central bank maintains a "foolproof system" of risk mitigation. The strategy involves reinvesting excess foreign currency into international assets to offset potential liabilities. The Governor identified several pillars supporting India's external stability:
- A current account surplus recorded during April-May.
- Consistently robust services exports and resilient remittance streams.
- A recovery in merchandise exports and improving trends in foreign direct investment.
Monetary Mandate and Banking Health
Price stability remains the RBI’s primary objective. While inflation has surpassed the 4% target midpoint, Malhotra stated that price pressures do not appear entrenched. The Monetary Policy Committee intends to maintain a data-driven approach, prioritizing inflation management before supporting growth objectives. On the banking front, the Governor rejected fears of overheating due to credit expansion, citing strong capital adequacy and stable funding ratios across Indian financial institutions. He noted that growing international interest in Indian banks and Non-Banking Financial Companies (NBFCs) reflects deep confidence in the regulatory framework and long-term economic prospects.
Source: The Hindu — Home
