RBI to Maintain Hands-Off Approach to Rupee, Prioritizing Stability over Intervention

Mumbai, February 6, 2026 – The Reserve Bank of India (RBI) will primarily refrain from intervening in the rupee's movement unless there are instances of extreme volatility, according to Governor Sanjay Malhotra. This stance reflects the central bank's confidence in the market's ability to determine the rupee's appropriate level, with intervention limited to curbing excessive or abnormal fluctuations.

Speaking after the Monetary Policy Committee (MPC) meeting on Thursday, February 6, 2026, Governor Malhotra emphasized that the RBI does not target specific exchange rates or bands for the rupee. Instead, the central bank's focus is on ensuring orderly market movements and preventing disruptive volatility, whether it be depreciation or appreciation.

Malhotra acknowledged that some depreciation of the rupee is expected, particularly given India's inflation differential compared to other economies. He noted that a moderate decline of around 2-3% annually is within acceptable levels. However, the RBI is prepared to step in to prevent sharp and destabilizing swings in either direction.

This approach aligns with the RBI's broader commitment to maintaining financial stability and allowing market forces to dictate the currency's value. The Governor has repeatedly stated that the exchange rate is market-determined, and the RBI's role is to ensure orderly movements and curb excess volatility. The central bank believes that the markets are efficient and deep, and in the long run, are the best arbiters of the rupee's value.

The Governor's comments come at a time when the rupee has experienced some volatility, recently trading near the 90 mark against the US dollar. The rupee has depreciated by approximately 5.4 per cent against the US dollar between April 1, 2025 and January 15, 2026. However, the RBI has expressed confidence in India's strong economic fundamentals and sufficient reserves to manage the external sector effectively. Forex reserves have surged to a record $709 billion, helped by a weaker dollar, a surge in gold prices and the RBI's forex swaps.

The RBI's hands-off approach may also be influenced by recent developments such as the India-US trade deal, which is expected to reduce tariffs on Indian exports. While the full impact of the deal remains to be seen, it is anticipated to provide some support to the rupee.

The MPC, in its meeting on February 6, decided to keep the repo rate unchanged at 5.25%. The last policy review saw the MPC retain a neutral stance, lower its FY26 inflation projection, and hold GDP growth for FY2025–26 at a robust 7.3%. The central bank has cut the repo rate four times in 2025—by 25 bps each in February and April, a sharper 50 bps in June, and a final 25 bps in December. The MPC expects inflation at 2.1% in FY26.

Furthermore, the RBI proposed to remove the limit of ₹ 2.5 lakh crore for investments under the Voluntary Retention Route (VRR). It is also proposed to introduce a framework to compensate customers up to an amount of Rs 25,000 for losses incurred in small value fraudulent transactions. The proposal to increase collateral-free loan limits for MSMEs to ₹20 lakh is a positive step and will provide much-needed liquidity support to small businesses that often struggle to offer traditional collateral.