As RBI Governor Sanjay Malhotra completes his first year in office, his tenure presents a contrasting economic picture, one marked by the comfort of easing inflation but overshadowed by the persistent strain on the Indian rupee.
While favourable inflation readings have offered policy space and underscored macroeconomic stability, the governor has simultaneously grappled with a volatile and weakening currency, which has emerged as Asia’s worst performer, despite otherwise strong domestic fundamentals.
The Indian rupee has suffered a turbulent year under Malhotra’s term so far, emerging as the worst-performing currency in Asia. This is due to the sustained equity outflows and lingering uncertainty over the proposed India-US trade pact.
On the other hand, Malhotra began his tenure at a time when inflation was running sharply above the RBI’s medium-term target of 4 percent. Over the months that followed, food price pressures steadily eased, with headline inflation not only moderating but also slipping below the lower end of the central bank’s tolerance band, at times.
According to the data, when Malhotra began his tenure, inflation in December 2024, stood at 5.22 percent, which fell to 4.26 percent in the following month, and then eased again to 3.61 percent in February. Between July and October, CPI Inflation remained most of the time below the 2 percent threshold band.
This steady decline offered the governor much-needed policy comfort, reinforcing the view that inflation risks were gradually receding even as external factors continued to challenge the broader economic landscape.
Additionally, this opened room for the central bank to cut repo rates and support growth, which has been dwindling, especially after the tariffs imposed by the US on Indian imports.
How rupee fell
Market participants point to a combination of factors weighing on the rupee, including strong demand for the dollar globally, elevated US bond yields, foreign portfolio investor (FPI) outflows from domestic equities, and uncertainty on the trade and geopolitical fronts.
Malhotra, who took charge as RBI Governor on December 11, 2024, has overseen a 5.71 percent slide in the rupee during his first year in office, marking the Indian currency as the worst-performer among its Asian peers.
Throughout his tenure, Malhotra has consistently emphasised that the central bank does not target any specific exchange rate level, but instead focuses on containing excessive volatility on both sides.
Yet, the sharp depreciation stands in contrast to India’s otherwise robust macroeconomic backdrop, including steady growth, a manageable fiscal position and resilient external buffers.
Rupee’s fastest fall
The fall of the Indian rupee against the US dollar has picked up pace sharply in the latest leg of its long-term depreciation cycle, when it touched a record low and crossed a psychological mark of 90 against the US dollar.
The domestic currency took just 231 days to slide from the 85 level to the 90 mark, highlighting a much faster erosion compared with earlier levels.
By comparison, the rupee had taken 542 days to move from 80 to 85, 608 days from 75 to 80, 382 days from 70 to 75, 1,198 days from 65 to 70, 42 days from 60 to 65, 268 days from 55 to 60, 846 days from 50 to 55, 45 days from 45 to 50, and 143 days from 40 to 45, according to Bloomberg data.
The fastest fall was seen in the 60–65 levels, which took just 42 days, but at a time when India’s external sector was undergoing structural shifts.
RBI intervention
Even as the Indian rupee touched a new record low and crossed a psychological level of 90 against the US dollar, the RBI is seen in the market with just limited interventions at certain levels.
The RBI Governor, during post-policy conference, said that the central bank’s stated policyis to allow the markets to determine prices. “We believe that the markets, in the long run especially, are very efficient. It's a very deep market. We saw this earlier in February.”
He added that the RBI’s effort has been always to reduce any abnormal or excessive volatility, and "that is what we will continue to endeavour".
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