Rupee nears record low at 96.84, but RBI Governor says currency may be undervalued
Speaking after the RBI’s latest monetary policy decision, Malhotra said several measures, including the Real Effective Exchange Rate (REER), suggest that the rupee is not overvalued and may, in fact, be undervalued.
- Oct 7, 2026,
- Updated Oct 7, 2026 4:23 PM IST
The Indian rupee fell 50 paise to 96.83–96.8450 against the US dollar on Wednesday, moving closer to its all-time low of 96.96, even as Reserve Bank of India Governor Sanjay Malhotra said the currency may be undervalued.
Malhotra, speaking after the RBI’s latest monetary policy decision, said several measures of the rupee’s value, including the Real Effective Exchange Rate (REER), suggest that the currency is not overvalued and could instead be undervalued.
The governor said the central bank would allow the rupee to find its “correct value” while ensuring an orderly movement and preventing excessive volatility. “Financial markets can be irrational in the short run. It is only in the long run they are able to find the right value,” Malhotra said.
The rupee’s latest decline puts it just about 12 paise away from its record low of 96.96 per dollar in May 2026.
| INR/US$ – May 20, 2026 | Value |
|---|---|
| Open | 96.8587 |
| High | 96.9650 |
| Low | 96.7225 |
| Close | 96.8262 |
“By a number of estimates, including the REER, the rupee is not overvalued; it may be undervalued,” Malhotra said. He added that financial markets could behave irrationally over shorter periods, while currencies tend to move closer to their appropriate value over the longer term.
The governor said the RBI would support an “orderly movement” in the rupee and ensure that the currency stabilises without allowing excessive volatility.
The comments came as the rupee remained under pressure, falling to 96.8450 against the US dollar on Wednesday, close to its record low of 96.96 reached in May. The latest decline came after the RBI raised its policy repo rate by 25 basis points to 5.50%, its first rate increase in nearly four years.
The rupee has faced sustained pressure this year, particularly since the escalation of the West Asia conflict in late February pushed crude oil prices higher. For India, which relies heavily on imported crude, an increase in oil prices raises the demand for dollars and can put additional pressure on the domestic currency.
The RBI has taken several measures to ease pressure on the rupee. It introduced a concessional swap facility for diaspora deposits and bond issuances, while banks have mobilised nearly $133 billion through FCNR(B) deposits. The measures provided temporary relief to the currency, but the rupee has come under renewed pressure in recent sessions.
Analysts said the RBI’s rate hike and shift in policy stance to “calibrated tightening” could provide some support to the rupee by improving interest-rate differentials.
“The 25 bps hike to 5.50% is defensible, and the shift to calibrated tightening matters more than the rate itself because it rules out near-term cuts,” said Sumit Singhania, Head of Research at Bajaj Broking.
DBS Bank Senior Economist and Executive Director Radhika Rao said the policy shift was “modestly constructive” for the rupee. Wider rate differentials and a tightening bias could strengthen the currency’s resilience against external shocks, although a stronger US dollar remains a headwind.
The RBI’s approach, therefore, appears aimed not at defending a particular rupee-dollar level, but at ensuring that the currency adjusts towards its underlying value in an orderly manner.
The Indian rupee fell 50 paise to 96.83–96.8450 against the US dollar on Wednesday, moving closer to its all-time low of 96.96, even as Reserve Bank of India Governor Sanjay Malhotra said the currency may be undervalued.
Malhotra, speaking after the RBI’s latest monetary policy decision, said several measures of the rupee’s value, including the Real Effective Exchange Rate (REER), suggest that the currency is not overvalued and could instead be undervalued.
The governor said the central bank would allow the rupee to find its “correct value” while ensuring an orderly movement and preventing excessive volatility. “Financial markets can be irrational in the short run. It is only in the long run they are able to find the right value,” Malhotra said.
The rupee’s latest decline puts it just about 12 paise away from its record low of 96.96 per dollar in May 2026.
| INR/US$ – May 20, 2026 | Value |
|---|---|
| Open | 96.8587 |
| High | 96.9650 |
| Low | 96.7225 |
| Close | 96.8262 |
“By a number of estimates, including the REER, the rupee is not overvalued; it may be undervalued,” Malhotra said. He added that financial markets could behave irrationally over shorter periods, while currencies tend to move closer to their appropriate value over the longer term.
The governor said the RBI would support an “orderly movement” in the rupee and ensure that the currency stabilises without allowing excessive volatility.
The comments came as the rupee remained under pressure, falling to 96.8450 against the US dollar on Wednesday, close to its record low of 96.96 reached in May. The latest decline came after the RBI raised its policy repo rate by 25 basis points to 5.50%, its first rate increase in nearly four years.
The rupee has faced sustained pressure this year, particularly since the escalation of the West Asia conflict in late February pushed crude oil prices higher. For India, which relies heavily on imported crude, an increase in oil prices raises the demand for dollars and can put additional pressure on the domestic currency.
The RBI has taken several measures to ease pressure on the rupee. It introduced a concessional swap facility for diaspora deposits and bond issuances, while banks have mobilised nearly $133 billion through FCNR(B) deposits. The measures provided temporary relief to the currency, but the rupee has come under renewed pressure in recent sessions.
Analysts said the RBI’s rate hike and shift in policy stance to “calibrated tightening” could provide some support to the rupee by improving interest-rate differentials.
“The 25 bps hike to 5.50% is defensible, and the shift to calibrated tightening matters more than the rate itself because it rules out near-term cuts,” said Sumit Singhania, Head of Research at Bajaj Broking.
DBS Bank Senior Economist and Executive Director Radhika Rao said the policy shift was “modestly constructive” for the rupee. Wider rate differentials and a tightening bias could strengthen the currency’s resilience against external shocks, although a stronger US dollar remains a headwind.
The RBI’s approach, therefore, appears aimed not at defending a particular rupee-dollar level, but at ensuring that the currency adjusts towards its underlying value in an orderly manner.