Chairman of the 16th Finance Commission and former vice-chairman of NITI Aayog Arvind Panagariya advised the Reserve Bank of India not to lose sleep over the rupee even if it is heading towards 100/$.
The Indian unit is the worst-performing Asian currency, depreciating 6.6 per cent in 2026.
“Do not let the psychology of Rs 100 per dollar determine your policy response. 100 is just a number, like 99 and 101,” the noted economist said in an X post.
On Thursday, the Indian unit reversed a nine-day losing streak to gain 0.65 per cent and close at 96.20/$.
“Whether the oil shortage is short-lived or long-lived, the right response at this moment is to let the rupee depreciate,” he said. If the shortage is short-lived, that is for three months to a year, the rupee will substantially recover once the oil import bill shrinks.
Even if the shortage lasts long, Panagariya warned that resorting to anything other than depreciation will be a losing proposition. “Trying to defend the rupee will continue to bleed the reserves until they are exhausted.”
His comments come at a time when there is a clamour for the central bank to take steps to attract inflows such as offering higher deposit rates to non-residents.
Panagariya cautioned against such schemes. “Nor would dollar-denominated bonds or high-interest dollar-denominated NRI deposits turn out to be more than a band-aid. Eventually, you will have to cross the 100-rupee-per-dollar psychological barrier,” he wrote.
During the currency crisis of 2013 amid the taper tantrum by the US Federal Reserve, the Indian central bank came out with a scheme that offered to swap US dollars raised by banks from foreign currency non-resident (FCNR) deposits of three-year maturity and above into rupees at a concessional rate. With US interest rates much higher this time around, such schemes are not feasible at this point in time, experts said.
“Dollar-denominated bonds and high-interest NRI dollar deposits are costly instruments that pay significantly higher interest than the rate India earns on its own foreign-currency reserves. It is largely a transfer to rich NRIs,” he said.
Panagariya said the Indian economy is in a much better position now compared to 2013, with inflation much lower.
“This is not 2013: Inflation was in double digits in 2013. Thanks to your prudent monetary management, that is not the case now. Therefore, the economy is well-positioned to absorb some inflationary pressure that will accompany the depreciation,” his X post said.
Though consumer price index-based (CPI-based) inflation edged up in April to 3.48 per cent, it remained below the RBI’s target of 4 per cent. The projection may be revised upwards in the next monetary policy meeting in June as pump prices of diesel and petrol have been hiked in May due to the sharp rise in crude oil prices following the West Asia conflict.
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