Mumbai, December 5, 2025 – Reserve Bank of India (RBI) Governor Sanjay Malhotra today addressed concerns regarding the recent depreciation of the rupee, stating that the central bank is not targeting any specific level for the currency and that the external sector remains "comfortable". His comments followed the Monetary Policy Committee's (MPC) decision to cut the repo rate by 25 basis points to 5.25%.
Malhotra clarified that the rupee's value is primarily determined by market forces. "We don't target any price levels or any bands. We allow the markets to determine the prices," he stated, emphasizing the RBI's belief in the efficiency of markets over the long run. He acknowledged that fluctuations are inevitable but reassured that the RBI intervenes only to curb excessive volatility in the forex market. "Our effort has always been to reduce any abnormal volatility in forex market," he added.
The Governor highlighted that the RBI possesses "very good" buffers of foreign exchange reserves, negating any need for concern regarding the external sector. As of November 28, 2025, India's forex reserves stood at a healthy $686.2 billion, providing import cover for more than 11 months. He expressed confidence in India's ability to comfortably meet its external financing requirements. The external debt-to-GDP ratio declined to 18.9% at the end of June, from 19.1% at the end of March. The current account deficit (CAD) also moderated to 1.3% of GDP in the July-September quarter, compared to 2.2% in the same period last year, driven by robust services exports and strong remittances.
The RBI's intervention in the forex market includes a three-year dollar-rupee buy-sell swap of $5 billion, scheduled for December. Malhotra clarified that this measure is primarily aimed at managing liquidity and is not intended to directly support the rupee. "It is a liquidity measure. It is not to support the rupee," he stressed. In a buy–sell swap, the RBI is expected to initially buy dollars from banks, injecting rupee liquidity into the system. When the swap matures three years later, the RBI will sell those dollars back to the banks, thereby absorbing liquidity. This mechanism helps manage long-term liquidity conditions while supporting stability in the foreign exchange market.
The Governor's statements come against the backdrop of the rupee recently breaching the 90-per-dollar mark. While the rupee's depreciation has raised some concerns, the RBI seems confident in its ability to manage the situation. The central bank has already factored in the rupee's current levels into its inflation estimates.
In addition to addressing the rupee's movement, Governor Malhotra announced a cut in the repo rate by 25 basis points to 5.25%. This decision was influenced by a benign inflation outlook and the economy's strong growth. CPI inflation has dropped to a low of 0.25% in October, which is below the RBI's target. For FY26, the RBI has revised its inflation projection downwards to 2%. The central bank also revised its real GDP growth projection upwards to 7.3% for FY26, citing strong domestic demand, the impact of GST rationalization, and healthy balance sheets of corporates and financial institutions. Malhotra characterized the current economic scenario as a "rare Goldilocks period," marked by high growth and low inflation.
