Rupee Is Market-Determined, No Target Band For Currency: Nirmala Sitharaman

Finance Minister Nirmala Sitharaman stated on Tuesday that the value of the Indian rupee against the US dollar is determined by market forces, with no fixed target or predefined range for the currency.

She emphasized that the government monitors key economic indicators, such as exchange rate movements, and discusses their effects on economic growth and fiscal stability at various governmental levels.

Rupee’s Recent Performance and RBI Intervention

On the same day, the rupee recovered from initial losses and closed 12 paise higher at 96.24 (provisional). Traders attributed this rebound to intervention by the Reserve Bank of India (RBI).

Sitharaman explained that the RBI continuously observes the foreign exchange market and takes action to manage excessive volatility.

The central bank also tracks global developments that could impact the USD-INR exchange rate.

RBI Measures to Support the Rupee

To alleviate pressure on the rupee, the RBI has implemented several measures to encourage foreign exchange inflows:

• In February 2026, it revised the External Commercial Borrowings (ECB) framework by widening the eligible borrower and lender base, adjusting borrowing limits, and modifying restrictions related to the average maturity period.
• On June 5, the RBI introduced initiatives to attract foreign investment, including increasing investment limits for Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and extending similar privileges to all individual Persons Resident Outside India (PROIs) for equity investments in the stock market without requiring SEBI registration.
• A concessional foreign exchange swap facility was announced to promote ECBs by Public Sector Undertakings and foreign currency borrowings with a minimum three-year maturity raised by Authorized Dealer banks. This swap carries a concessional rate of 1.5 percent per annum compounded semi-annually and is effective until January 15, 2027.
• The RBI also reinstated the export realization period to nine months, reverting from the previous 15-month term.

Factors Influencing Rupee Depreciation and Implications

Sitharaman noted that the rupee’s depreciation stems from factors such as reduced capital account support amid rising crude oil prices following Middle East conflicts.

While a weaker domestic currency may boost export competitiveness, positively influencing the economy, it can also increase the cost of imported goods.

Import patterns depend on various factors including global supply and demand, geopolitical dynamics, domestic demand, integration in global value chains requiring intermediate imports for production and exports, and international commodity prices.

Therefore, the effects of exchange rate fluctuations on import costs, domestic inflation, essential commodity prices, micro, small and medium enterprises, and the general public are multifaceted and cannot be viewed in isolation.

Key Takeaways

• The Indian rupee’s value against the US dollar is driven by market forces without a fixed target band.
• The RBI actively manages exchange rate volatility and implements supportive measures to stabilize the currency.
• Recent RBI reforms aim to enhance foreign investment and improve foreign exchange inflows.
• Rupee depreciation is influenced by global geopolitical tensions and rising crude oil prices.
• Exchange rate fluctuations have complex implications on imports, inflation, and various economic sectors.