The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said financial markets can often behave irrationally in the short term and suggested that several indicators point to the rupee being undervalued rather than overvalued.

Speaking at the post-policy press conference following the Monetary Policy Committee's (MPC) decision, Malhotra said market perceptions and currency positioning do not always reflect the underlying value of a currency.

"Only in the long run are markets able to find the right value," he said while responding to a question on the continued depreciation bias reflected in currency surveys and hedging activity.

The RBI chief noted that different measures used to assess currency valuation, including the real effective exchange rate (REER), indicate that the Indian rupee is not overvalued and may, in fact, be undervalued.

"By a number of estimates, including the REER, rupee is not overvalued, may be undervalued," Malhotra said.

His remarks came amid questions over why market participants continue to anticipate weakness in the rupee despite India's ability to attract foreign capital inflows when required.

Analysts have often pointed to hedging patterns and currency forecasts that suggest expectations of further depreciation in the local unit.

The comments followed the RBI's latest monetary policy review in which the MPC voted to raise the benchmark repo rate by 25 bps at 5.50 per cent.

Previously, the August 2026 policy decision was the fourth consecutive meeting in which the central bank maintained both the repo rate and its neutral stance.

The MPC had also left rates unchanged in June, April and February 2026 after delivering a 25-basis-point rate cut in December 2025 that lowered the repo rate to 5.25 per cent.

Before the December easing, the central bank had kept the benchmark lending rate unchanged at 5.50 per cent in its October 2025 review.

Meanwhile, earlier in the day, the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting -- led by Governor Sanjay Malhotra -- announced to raise key policy rate by 25 basis-points (bps), taking it to 5.50 amid a challenging global environment.

SDF rate stands adjusted at 5.25 per cent, and the marginal standing facility range and the bank rate to 5.75 per cent, said the RBI.