SBI Research in its report has called for stronger Reserve Bank of India intervention to stem the rupee’s sharp depreciation, arguing that the currency’s weakness is out of sync with the country’s macroeconomic fundamentals. In its pre-policy report released on Sunday, it said that the RBI is likely to maintain status quo amid heightened geopolitical uncertainty, rising crude oil prices and emerging inflationary pressures. The report projects consumer inflation above 5% over the next three quarters, while estimating FY27 GDP growth at 6.6%.
The report’s central concern, however, is the rupee’s recent performance. It described the pace of depreciation as “reckless”, noting that the currency took just 152 days to weaken from 90 to 95 against the US dollar and touched a low of 96.83 on May 20.
“Despite strong macro fundamentals, the rupee is depreciating much more vis-à-vis other currencies,” the report said, adding that India’s foreign exchange reserves remain sufficiently strong to counter excessive volatility and support the currency.
The report argued that RBI intervention in recent months may have been inadequate and called for a more comprehensive policy response. It suggested that the central bank must consider a broader balance-of-payments package incorporating liquidity measures, capital flow management tools and strategic market interventions.
It pointed to the RBI’s actions during the 2013 currency volatility episode, when the central bank raised the marginal standing facility (MSF) rate to stabilise the rupee, and suggested measures such as Operation Twist, under which short-term rates could rise at the expense of long-term rates.
The report also contended that the rupee is currently undervalued relative to India’s economic fundamentals and has overshot its fair value implied by the real effective exchange rate (REER).
It highlighted that the elevated crude oil prices and a weakening rupee could increase imported inflation pressures. It expects imported inflation to rise in May, aided by recent fuel price hikes and currency depreciation.
Further, it flagged weather-related risks, citing expectations of a below-normal monsoon and the possibility of an El Niño event. Combined with higher fuel costs, these factors could keep inflation risks tilted to the upside despite remaining within the RBI’s tolerance band.
TOPICSRBIRupee vs us dollarSBIThis article was first uploaded on May thirty-one, twenty twenty-six, at five minutes past six in the evening. © The Indian Express (P) Ltd