Finance Minister Nirmala Sitharaman has reiterated that the Centre does not have any target for the Indian rupee’s value against the US dollar, stating in a written reply in Parliament that the exchange rate is determined by market forces rather than government intervention.
Responding to a question in the Rajya Sabha, she clarified that there is no fixed level, trading band or devaluation target for the rupee, while the Reserve Bank of India (RBI) intervenes in the foreign exchange market only to curb excessive volatility and ensure orderly market conditions.
Her remarks come as the rupee remains under pressure due to rising global crude oil prices, a strong US dollar, geopolitical tensions in West Asia, foreign capital outflows and broader global uncertainty. Sitharaman also said that both the government and the RBI are closely monitoring currency movements and their impact on inflation, growth and overall macroeconomic stability.
The statement reinforces India’s long-standing market-determined exchange rate policy even as discussions continue over whether the RBI should intervene more aggressively to support the currency.
Rupee Driven By Markets
Addressing Parliament, Sitharaman emphasised that the value of the rupee is determined by demand and supply in the foreign exchange market and not by any government-set benchmark. “The government does not have any target or specific level or band or devaluation target for the exchange rate of the rupee against the US dollar,” she said in her written response.
She added that the RBI intervenes only to smooth excessive volatility and prevent disorderly market movements rather than defend any particular exchange rate. According to the Finance Minister, the government and the central bank continuously assess developments in domestic and global financial markets because exchange-rate fluctuations can influence inflation, trade, investment and economic growth.
She also noted that the RBI keeps a close watch on international developments affecting the USD-INR exchange rate. Her remarks are consistent with recent statements by RBI Governor Sanjay Malhotra, who has also maintained that the central bank does not target any specific exchange rate or trading band, but instead focuses on ensuring orderly market functioning and efficient price discovery.
The clarification comes at a time when the rupee has been hovering close to record lows against the US dollar. Analysts attribute the weakness to a combination of global and domestic factors. Higher crude oil prices have increased India’s import bill and boosted demand for dollars from oil companies, while expectations of tighter US monetary policy and higher American bond yields have strengthened the dollar globally.
Geopolitical tensions in West Asia, concerns over disruptions to oil supplies, foreign institutional investor outflows and broader global risk aversion have also contributed to pressure on emerging market currencies, including the rupee.
A weaker rupee raises the cost of imports such as fuel, electronics and machinery, potentially adding to inflationary pressures and increasing expenses for overseas travel and education. At the same time, it can improve the competitiveness of Indian exports and increase rupee earnings for IT companies and exporters receiving payments in foreign currency.
RBI’s Policy And Broader Context
India follows what economists describe as a market-determined or managed-float exchange rate regime. Under this framework, the rupee’s value is largely decided by market demand and supply, while the RBI intervenes only when currency movements become excessively volatile or threaten financial stability.
Unlike countries that maintain fixed exchange rates or predetermined currency bands, India does not commit to defending a particular exchange rate using its foreign exchange reserves. This approach allows the currency to absorb external shocks while preserving the country’s reserves for periods of market stress.
Sitharaman also highlighted measures taken by the RBI to strengthen foreign exchange inflows and support external stability. These include changes to the External Commercial Borrowing (ECB) framework, such as expanding the eligible borrower base, widening recognised lenders, easing borrowing norms and relaxing maturity conditions.
The RBI has also encouraged inflows through Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits and other liquidity-support measures. According to recent RBI data cited by the Finance Minister, these initiatives have attracted more than 20 billion US dollars in foreign currency inflows, strengthening India’s balance of payments and bolstering foreign exchange reserves.
The Finance Minister’s statement also comes amid an ongoing debate among economists and market participants over the extent of RBI intervention in the foreign exchange market. Some believe the central bank should intervene more aggressively to slow the rupee’s depreciation, while others argue that excessive intervention could distort market signals and rapidly deplete foreign exchange reserves.
Most major economies with floating exchange rate systems avoid announcing explicit currency targets because artificial support can encourage speculative attacks and reduce the flexibility needed to absorb global economic shocks.
By reaffirming that there is no official exchange-rate target, the government has signalled continuity in its policy approach while assuring Parliament that currency movements and their implications for inflation, growth and financial stability remain under constant review.
The Logical Indian’s Perspective
Currency movements affect much more than financial markets they influence the prices people pay for fuel, food, imported goods, education and travel, while also shaping the competitiveness of Indian businesses and exporters. At a time when global economic uncertainty remains elevated, transparency in economic policymaking becomes essential for building public trust.
The Finance Minister’s clarification that India does not pursue an artificial exchange-rate target offers greater clarity about how the country’s currency policy is managed and highlights the importance of allowing markets to function while intervening only to prevent disruptive volatility. However, economic decisions should always be accompanied by clear communication so that citizens understand how fluctuations in the rupee may affect their daily lives and livelihoods.
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