Rajan's argument is not that the RBI should ignore the rupee's decline. Rather, he believes policymakers should avoid committing excessive resources to maintaining a pa…
**Rajan Urges Caution on Rupee Defence**
Former Reserve Bank of India governor Raghuram Rajan has cautioned against defending the rupee at any cost, arguing that policymakers should not target a specific exchange rate or exhaust foreign exchange reserves when wider economic forces are driving the currency lower. Speaking to Reuters at the Global Markets Forum on 27 October, he said the first response should be to avoid panic, and that authorities should judge whether the current slide is an outlier compared with past episodes rather than reacting only to the exchange rate.
**What Is Driving The Rupee**
The rupee has weakened by roughly 6% in 2026, ranking as Asia's second-worst performer, and touched a record low of 96.96 in May. It closed at 95.1150 against the dollar on Tuesday, marginally stronger than Monday's 95.1850. The pressure stems from three sources: Brent crude near $117 per barrel, elevated US Treasury yields and sustained foreign outflows. Reuters reported the RBI has spent about $80 billion since June supporting the currency, while foreign investors net sold roughly $8.5 billion of Indian equities over two months.
**Why It Matters For Business**
A weaker rupee raises the cost of imported inputs, including crude, which feeds into inflation and widens the current account deficit. For importers and firms with unhedged dollar payables, this translates into higher landed costs and tighter margins. Exporters, however, gain competitiveness as Indian goods become cheaper overseas, a point Rajan made in noting that some depreciation is not necessarily harmful. He also warned against rapidly deploying funds raised through foreign currency non-resident bank deposits to defend a particular exchange-rate level, saying it would be a shame if money recently attracted through that route was quickly spent.
**What To Watch Next**
Readers should track crude oil prices, US Treasury yields and the pace of foreign portfolio flows, since these fundamentals, rather th…
Services related to this update
Want this handled for you?
Get a free expert consultation and an exact quote within 24 hours.
Get free quote
