A nation shouldn't be judged by its exchange rate: RBI governor

MUMBAI: RBI governor Sanjay Malhotra on Monday said that the strength of a nation should not be judged by its currency's exchange rate alone. He said that India's economic fundamentals were strongly boosted by high growth, low inflation, financial stability, healthy investment and consumption, and high foreign exchange reserves.

The governor was responding to the question if the rupee's current exchange rate of 90-to-a-dollar was a sign of weakness of the Indian economy. In an interview with NDTV Profit, he also said that the rupee's movement remained orderly and it was not excessively volatile.

Malhotra also reiterated the central bank's stance that the exchange rate level of the rupee should be determined by the market. "The RBI's policy on rupee and exchange rates has been consistent over the years. We believe that the markets are quite robust, they are quite deep, they are quite wide. And so, we believe the markets will ultimately determine the prices," the RBI chief said.

He also said that India will continue to attract foreign investments on the back of strong domestic growth. He cited the free trade agreements recently signed with various countries and blocks, and also large investment commitments by global giants like Amazon, Google and Microsoft. However, he said that such inflows may not be secular and not continue to flow at the same rate year after year, but "overall, India should continue attracting quality investments across banking, technology and the broader economy."

The RBI chief explained that inflows were not the result of work done in a single year. "Investors-both foreign and domestic-are attracted by the sector's resilience and India's long-term growth prospects. Importantly, these are not hot money flows but long-term, patient capital," Malhotra said in the interview.

About the rate of consumer inflation in India, the RBI governor said it was currently low due to food price base effects and soft global commodity prices. "As base effects fade, inflation is already rising. Our projections show inflation moving towards 3-4%, which is a comfortable range. Core inflation is also well-behaved. Overall, inflation is at a level we are comfortable with," Malhotra said.

India's consumer inflation for Dec was at 1.3%, a three-month high and up from 0.7% in Nov, govt data showed.