RBI Deputy Governor Poonam Gupta sees fair case for rupee appreciation

NEW DELHI — Reserve Bank of India Deputy Governor Poonam Gupta stated on Wednesday that there is a fair case for the Indian rupee to appreciate from its current levels, marking a notable shift in the central bank’s public commentary on currency valuation. Gupta made the remarks during a public address, noting that while the rupee has faced pressure in recent quarters, underlying economic fundamentals now support a stronger currency trajectory.

Macroeconomic Fundamentals

Gupta emphasized that the rupee’s value is determined by market forces, but the central bank monitors the currency’s trajectory closely to ensure it does not deviate excessively from its fundamental value. She pointed to several key indicators that currently favor appreciation. These include a significant narrowing of the current account deficit, a robust level of foreign exchange reserves, and stable domestic inflation rates that have remained within the central bank’s target band for several consecutive quarters.

The Deputy Governor noted that India’s external sector has shown resilience despite global volatility. The current account deficit, which had widened in previous years due to high oil imports and capital outflows, has moderated significantly. This improvement is attributed to a combination of lower global energy prices, a strong services export sector, and increased remittances from the Indian diaspora. These factors have helped to reduce the pressure on the rupee, creating conditions where appreciation is economically viable.

Market Reaction and Context

The rupee has traded in a relatively narrow range in recent months, reflecting a balance between domestic demand for foreign currency and global capital flows. Gupta’s comments are likely to be closely watched by currency traders and policymakers, as they signal the central bank’s view on the appropriate level of the exchange rate. While the RBI has historically avoided direct intervention to prop up the rupee, it has intervened in the foreign exchange market on occasion to smooth out excessive volatility.

Economists and market analysts have generally welcomed the remarks, viewing them as a reflection of the improving macroeconomic landscape. Several analysts noted that a stronger rupee could help to reduce the cost of imports, including crude oil and gold, which would provide relief to consumers and businesses. However, they also cautioned that a rapid appreciation could negatively impact the export sector, which relies on a competitive exchange rate to maintain its global edge.

Policy Stance and Future Outlook

Gupta reiterated that the RBI’s primary objective is to maintain price stability while supporting economic growth. She stated that the central bank will continue to monitor the rupee’s trajectory and will take appropriate measures if necessary to ensure that the exchange rate remains aligned with fundamental values. The RBI has consistently maintained that it does not target a specific level for the rupee, but rather focuses on ensuring that the currency’s movement is orderly and does not disrupt financial stability.

The Deputy Governor also highlighted the importance of maintaining a flexible exchange rate regime, which allows the currency to adjust to changes in global and domestic economic conditions. She noted that a flexible exchange rate acts as a shock absorber, helping to mitigate the impact of external shocks on the domestic economy. This approach, she said, has helped India to navigate through various global crises, including the pandemic and the recent geopolitical tensions.

Gupta’s remarks come at a time when the global economic outlook remains uncertain, with many major economies facing challenges related to inflation, interest rates, and geopolitical risks. In this context, India’s relative macroeconomic stability has attracted significant foreign investment, further supporting the rupee. The Deputy Governor expressed confidence that the country’s strong institutional framework and policy credibility will continue to underpin the currency’s value in the coming months.