Whalesbook
Economist Arvind Panagariya has urged the Reserve Bank of India (RBI) to permit a gradual depreciation of the rupee rather than attempting to artificially bolster it. His comments come as the Indian currency neared historic lows, with the one-year forward market briefly surpassing the ₹100 per dollar mark.
Don't Fear the ₹100/$ Barrier
Panagariya articulated on the social media platform X that the ₹100 per dollar level is merely a psychological number and should not dictate the central bank's monetary strategy. He cautioned against exhausting the nation's foreign exchange reserves in a futile attempt to defend this perceived barrier, especially if current oil price shocks are prolonged.
Caution on Stop-Gap Measures
The former NITI Aayog Vice-Chairman also advised against relying on costly measures such as dollar-denominated bonds or high-interest NRI dollar deposits. He characterized these as expensive, short-term solutions that primarily benefit affluent overseas investors.
Stronger Macroeconomic Fundamentals
Panagariya emphasized that India's current macroeconomic footing is significantly more robust than during the 2013 currency crisis, when inflation was in double digits. With inflation currently more contained, he believes the economy is better equipped to manage the moderate inflationary pressures that might arise from a weaker rupee.
Despite his stance, the rupee saw a partial recovery on Thursday, gaining 49 paise to close at ₹96.37 against the US dollar. This rebound followed a dip in crude oil prices and a perceived easing of geopolitical tensions, potentially aided by RBI intervention. However, forex analysts remain watchful, noting that the one-year forward market breaching ₹100/$ signals growing expectations of continued rupee weakness. DBS Bank forecasts the dollar-rupee pair to trade within the ₹95-₹100 range through 2026, citing persistent external pressures and oil market volatility.