The rupee rose on Monday morning, adding on to its gains in recent days, after global crude oil prices eased sharply on the expectation of a peace deal between the US and Iran moving closer.

The gains also follow Reserve Bank of India Governor Sanjay Malhotra’s statement that the rupee may be undervalued following the recent depreciation and that it would do whatever is needed to ensure orderly forex market movement.   

With the recent depreciation, it would be reasonable to think that the rupee is not overvalued, he said in an interview with financial daily Mint. If anything, one could argue that the rupee has become undervalued, both in nominal as well as in REER (real effective exchange rate) terms, he said.

Behind rupee's recent gains

The rupee has depreciated around 6% so far in the calendar year 2026. It hit a record low of 96.90 against the dollar last week. However, the RBI stepped in to sell dollars, and that has pulled the currency back.

The rupee closed at 96.37 against the greenback on Thursday, May 21 and further recovered to 95.69 on Friday, May 22. On Monday, May 25, it opened with further gains at 95.34 and touched a high of 95.20.  

The gains come as hopes rise that a peace deal between the warring US and Iran may be inching closer. This has led to a sharp pullback in crude oil prices, which will be a big positive for India, which is dependent on imports for a majority of its oil and gas requirements. Falling prices will help India reduce its forex pressures.   

RBI Governor Malhotra reiterated that the central bank doesn’t target any price level or band and that it only tries to curb any high volatility. He also stressed that if there was any “undue speculation getting built,” it would step in to bring order.

The central bank would do whatever is required to ensure orderly price discovery in the forex market, he said.

RBI’s forex reserves have been fairly strong at around $700 billion, which gives the central bank confidence.

More money for contingent risks

RBI on Friday announced a transfer of record Rs 2.87 lakh crore in surplus to the union government for the financial year 2025-26. While this year’s surplus transfer by the RBI is more than the previous year’s Rs 2.69 lakh crore, it is lower than the Rs 3.16 lakh crore that the government had estimated in the Union Budget in February this year from total dividends from public sector companies and surplus transfer from the central bank.

What the RBI has done is that, in the backdrop of the current macro uncertainties, it will transfer Rs 1.09 lakh crore towards the Contingent Risk Buffer (CRB) for 2025-26. This is more than double the Rs 44,862 crore it transferred towards CRB in 2024-25.

Devendra Kumar Pant, chief economist at India Ratings and Research, noted that transferring a higher amount to the CRB would help RBI intervene in the financial market depending on evolving macroeconomic conditions.

The healthy dividend by RBI was primarily driven by higher interest income from G-secs (government securities) and strong foreign exchange income supported by gross forex sales of $180 billion in FY2026, albeit significantly lower than the $398 billion last year, said Madhavi Arora, lead economist at Emkay Global Financial Services.

It likely offset the impact of higher provisioning linked to balance sheet growth as well as potential mark-to-market losses on both domestic and foreign asset holdings, Arora added.

Published on: May 25, 2026 11:39 AM IST