Flexible Rupee on the Cards? Governor Sanjay Malhotra Signals Shift in RBI Stance

Reserve Bank of India (RBI) Governor Sanjay Malhotra seems ready to allow the rupee to move freely in tandem with peers in the region while still intervening in the foreign exchange market to curb excessive moves, people familiar with the regulator’s view informed Bloomberg. The Governor reportedly held multiple meetings with departments at the central bank before the RBI Monetary Policy Meeting next month.

The report also said that Malhotra showed keen interest in the RBI’s currency intervention functions and he did not object to his team when it explained the recent movements in the rupee and the need to allow it to depreciate.

The RBI’s overall objective is still to avoid targeting a specific level for the rupee and to intervene regularly to curb excessive volatility and prevent any speculative attacks, according to Bloomberg.

Rupee Hits Fresh Low

Malhotra's stance is opposite to his predecessor, Shaktikanta, Das who kept a tight rein on the currency. Since Das's departure from the office, the rupee depreciated 2 per cent against the dollar.

On Tuesday, the Indian rupee hit a fresh low of 86.68 per dollar as foreign investors and oil importers continued to stock up on dollars.

Read More | Rupee Falls 2 Paise to 86.55 Against US Dollar in Early Trade

A day prior, the local currency settled at 86.58 per dollar.

The rupee was resilient for almost two years before it became the worst performing Asian currency this month.

The Trump Tantrum Impact

According to a report by the State Bank of India, the rupee may experience some volatility in the early days of Donald Trump’s presidency, but it is likely to stabilise soon after.

"“Glancing back at the US presidency through the Nixon years, rupee appears more stable during the Republican regimes as against its performance through the Democratic occupants at the Oval office," the report said.

"However, the volatility in near term is nowhere reminiscent of the heydays of the Taper Tantrum, forcing us to believe that the Trump Tantrum for INR will be a short-term phenomenon and home currency should adjust post the initial shock of early days of presidency,” it added.