RBI Governor Sanjay Malhotra stated that a 5% rupee depreciation adds 30–35 bps to inflation, stressing the currency’s impact on price stability. He noted that market forces drive the rupee’s value, with the RBI focusing on long-term stability amid global volatility in crude prices and US monetary policy signals.
Reserve Bank of India (RBI) Governor Sanjay Malhotra highlighted the direct correlation between currency depreciation and inflation during his recent remarks on February 8, 2025. He explained that a 5% depreciation of the Indian rupee against the US dollar typically results in a 30–35 basis points (bps) increase in inflation, underscoring the sensitivity of India’s price stability to exchange rate movements.
Key Highlights
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Currency impact: A 5% fall in the rupee’s value adds approximately 35 bps to inflation, reflecting higher import costs.
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Market forces: Malhotra emphasized that the rupee’s value is largely determined by market dynamics, with the RBI focusing on medium- to long-term stability rather than short-term fluctuations.
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Policy context: His comments come amid ongoing discussions on monetary policy, where balancing inflation control with growth remains a priority.
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Global backdrop: Volatile crude oil prices and US Federal Reserve signals continue to influence the rupee’s trajectory, making currency management critical for India’s inflation outlook.
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Investor takeaway: The RBI’s stance highlights its commitment to monitoring external shocks while ensuring domestic price stability.
Malhotra’s remarks reinforce the importance of exchange rate management in India’s inflation strategy, offering clarity to markets and policymakers alike.
Sources: Deccan Herald, RBI Press Release