RBI Governor Says Rupee Undervalued After Slide to Near 100 Per Dollar

Reserve Bank of India Governor Sanjay Malhotra stated on 25 May 2026 that the Indian rupee may now be undervalued in both nominal and real terms following its recent depreciation. The currency has been approaching the psychologically significant 100-per-dollar mark amid volatility driven by the ongoing West Asia conflict. Malhotra reiterated that the central bank does not target a specific exchange rate and will only intervene to curb abnormal volatility. He also described India's balance of payments position as not yet an undue concern, despite the conflict's pressure on crude oil prices. As of 02:39 UTC today, the rupee's trajectory is a critical variable for major index-tracking funds and Indian exporters, who see potential benefits from the currency's slide.

Context — why this matters now

The Indian rupee's approach to 100 per US dollar marks a significant psychological threshold not seen since the currency's major realignment against the dollar basket two decades ago. The last time market sentiment focused intensely on a round-number level for the rupee was during the 2013 'taper tantrum', when the currency breached 68 per dollar, prompting aggressive RBI intervention to stabilize markets. The current macro backdrop is defined by elevated geopolitical risk premiums in energy markets, which directly impact India's substantial import bill.

The immediate catalyst for the rupee's recent slide is the intensification of the West Asia conflict, which has driven up global crude oil prices. India imports over 80% of its crude oil needs, making its current account highly sensitive to energy price shocks. This external pressure has converged with broader US dollar strength as global investors seek safe-haven assets, compounding depreciation pressure on emerging market currencies like the rupee. Governor Malhotra's comments aim to provide forward guidance and temper speculative trading around the 100 level.

Data — what the numbers show

The Indian rupee has depreciated approximately 8.5% against the US dollar year-to-date, with the bulk of the move occurring in the second quarter. This depreciation places the rupee among the weaker-performing major Asian currencies in 2026, underperforming regional peers like the Indonesian rupiah and the Philippine peso. The real effective exchange rate (REER), a weighted average of a currency's value relative to a basket of trade partners adjusted for inflation, for the rupee is estimated to have fallen below its long-term average, supporting the undervaluation argument.

India's current account deficit widened to 2.1% of GDP in the last reported quarter, up from 1.2% in the prior quarter, primarily due to the higher oil import bill. Foreign exchange reserves held by the RBI stand at approximately $650 billion, providing a substantial buffer equivalent to over 10 months of imports. The table below shows the recent performance of the rupee against key crosses:

Currency Pair	Rate (approx)	YTD Change
USD/INR	99.85	+8.5%
EUR/INR	107.90	+6.1%
GBP/INR	125.60	+9.2%

The 125.60 level for GBP/INR represents a multi-decade high for the British pound against the rupee. The RBI's stated tolerance for volatility, absent 'abnormal' moves, suggests a potential widening of the trading band around the 100 per dollar mark.

Analysis — what it means for markets / sectors / tickers

An undervalued rupee creates distinct winners and losers within the Indian economy and for global investors. Export-oriented sectors are the primary beneficiaries. Information technology services giants like Tata Consultancy Services and Infosys, which bill primarily in US dollars, see an immediate boost to rupee-denominated revenue and margins. The pharmaceutical and specialty chemicals sectors, which derive significant export income, also gain a competitive pricing edge in global markets. The NIFTY IT Index has historically shown a strong positive correlation with rupee depreciation.

Domestic-focused companies and sectors that rely on imported raw materials face headwinds. Automakers, consumer electronics firms, and capital goods importers will see input costs rise, potentially squeezing margins unless they can pass costs to consumers. Airlines, with their large dollar-denominated fuel and aircraft leasing costs, are particularly vulnerable. A key limitation to the bullish export thesis is global demand elasticity; a weaker rupee only boosts exports if global economic growth remains strong enough to absorb Indian goods and services.

Positioning data indicates that speculative short positions on the rupee in the non-deliverable forward (NDF) market have increased in recent weeks. However, long-term institutional flows into Indian debt and equity markets have remained resilient, attracted by the country's growth premium. The flow dynamic suggests a divergence between short-term currency traders betting on further weakness and long-term asset allocators viewing the depreciation as a potential entry point for rupee assets.

Outlook — what to watch next

The immediate catalyst for the rupee will be the outcome of the next OPEC+ meeting scheduled for 5 June 2026, which will set the near-term direction for crude oil prices. Domestically, India's balance of payments data for Q1 2026, due for release on 30 June, will provide a concrete measure of the current account strain. The US Federal Reserve's policy decision on 17 June will also be critical, as it influences broad dollar strength and global capital flows into emerging markets.

Technical levels to watch include immediate support for USD/INR around the 99.20 level and resistance at the key psychological barrier of 100.25. A sustained break above 100.50 could trigger algorithmic trading flows targeting 101.80. On the REER front, analysts will monitor whether the index remains below the 100 level, which would empirically support the sustained undervaluation argument. The RBI's actions in the spot and forward markets will be scrutinized for any shift from its stated 'volatility management' stance to a more defensive posture.

Frequently Asked Questions

What does an undervalued rupee mean for Indian stocks?

An undervalued rupee typically provides a tailwind for the earnings of export-heavy companies listed on Indian exchanges, particularly in the information technology, pharmaceuticals, and automotive sectors. The NIFTY IT Index, for example, often moves inversely to the rupee's strength against the dollar. However, it also increases input costs for companies reliant on imported components and energy, creating a bifurcated market. Retail investors with exposure to broad market indices may see muted overall effects as these sectoral impacts offset each other.