Rupee dropped closer to a record low against the US dollar on Wednesday after the Reserve Bank of India (RBI) announced its first rate hike in nearly four years. However, the central bank’s Governor Sanjay Malhotra believes that the Indian currency may be undervalued.
“Financial markets can be irrational in the short run. It is only in the long run they are able to find the right value," Malhotra said during the post policy press conference. "By a number of estimates, including the REER (real effective exchange rate), the rupee...may be undervalued," he added, while responding to a question on why currency polls and hedging behaviour continued to point to a rupee depreciation bias.
