Even as the Reserve Bank of India Governor Sanjay Malhotra assured that the central bank will support the rupee to reach its “correct value”, the Indian currency fell to 96.8450 per dollar, barely above its all-time low of 96.96 on 20 May.

Despite the RBI raising the key benchmark repo rate by 25 basis points to 5.50% and signaling more hikes by changing its stance to "calibrated tightening" from "neutral", the rupee on Wednesday sank to a five-month low and has been down over 7% year-to-date.

Malhotra said that the rupee may be “undervalued” as per many estimates but the RBI will ensure that the Indian currency “stabilises”.

Speaking at a post-policy press conference, Malhotra said while markets can be "irrational" in the short term, they find their right value in the long run.

"By ​a number of estimates, including the REER (real effective exchange ‌rate), ⁠rupee ... may be undervalued," he added.

Malhotra said the RBI would ensure the rupee stabilises, finds its correct value and moves in an ​orderly manner with no excessive volatility.

Despite banks mobilising nearly $133 billion in foreign currency non-resident (Bank), or FCNR(B), deposits under the RBI’s concessional swap facility, the currency is under pressure and has depreciated in the last few sessions.

The rupee’s decline against the dollar has been despite RBI’s persistent interventions in the market.

The Indian currency has been hit by foreign portfolio outflows, elevated oil prices, rising global bond yields as central banks have raised rates to combat inflation.