The economy is not harmed by the falling rupee; why did the RBI Governor make this statement?

Reserve Bank of India (RBI) Governor Sanjay Malhotra believes that the rupee's recent weakness will not have a significant negative impact on the Indian economy. 

He says the current level of rupee decline is not significantly different from the trend of the past 1020 years and cannot be considered unusual.

In an interview, the RBI Governor stated that the rupee has depreciated by an average of about 3 percent annually over the past 10 years, while over a 20-year period, the decline has been approximately 3.4 percent annually. 

Therefore, the current decline should not be considered extraordinary. He added that currency fluctuations over time are a natural process.

Why the rupee came under pressure this year

The rupee has come under pressure this year due to several factors. A strengthening US dollar, foreign investor outflows from India, and uncertainty surrounding a potential India-US trade tariff agreement have all weakened the rupee. 

In mid-December, the rupee hit a record low against the dollar. So far in 2025, the rupee has been among the weakest performing Asian currencies.

RBI strategy

The RBI's strategy regarding the rupee's movement appears to be somewhat different than before. According to the Governor, the central bank is now giving more importance to market forces. 

The RBI intervenes only when excessive volatility or speculation begins to develop in the currency market. He says that the RBI's aim is not to set a fixed value for the rupee, but to prevent volatility.

India's external position is strong

Even amid a weak rupee and global tensions, the RBI remains confident in India's external financial position. According to recent data, the country has foreign exchange reserves equivalent to approximately 11 months of imports. Furthermore, approximately 92 percent of India's total external debt is covered by foreign exchange reserves.

Relief from trade deficit and foreign exchange reserves

India's trade deficit fell to a five-month low in November, largely due to a decline in gold, oil, and coal imports. Exports to the United States also saw a significant increase. 

The RBI Governor stated that India's total external debt is approximately $750 billion, while foreign exchange reserves are approximately $690 billion, enabling the country to comfortably meet its international obligations.

Reserve Bank of India