‘100 is just a number, like 99 and 101.’
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Chairman of the 16th Finance Commission and former Niti Aayog vice chairman Arvind Panagariya advised the Reserve Bank of India not to lose its sleep over the rupee even if it is heading towards 100/$.
The Indian unit is the worst Asian performer depreciating 6.6 per cent in 2026.
Key Points
- Arvind Panagariya advised the RBI not to panic even if the rupee weakens towards the Rs 100-per-dollar level.
- The economist argued that allowing rupee depreciation is preferable to exhausting foreign exchange reserves defending the currency.
- Panagariya warned against costly measures like high-interest NRI deposits or dollar-denominated bonds to support the rupee.
‘Do not let the psychology of Rs 100 per dollar determine your policy response.
‘100 is just a number, like 99 and 101,’ the noted economist, who is now professor of economics and the Jagdish Bhagwati Professor of Indian Political Economy at New York’s Columbia University, said in a post on X.
On Thursday, the Indian unit reversed 9 days of losing streak to gain 0.65 per cent to close at 96.20/$.
‘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 3 months to an year, the rupee will substantially recover once the oil-import bill shrinks.
RBI Urged Against Intervention
Even if the shortage lasts long, Professor 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 for attracting inflows like offering higher deposit rates to non-residents.
Professor Panagariya cautioned against such schemes.
‘Nor would the 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.
Rupee Nears Rs 100 Per Dollar
During the currency crisis of 2013 amid taper tantrum of the US federal reserve, the Indian central bank came out with a scheme, which offered to swap US dollar raised by banks from foreign currency non-resident (FCNR) deposits of maturity 3-year and above into INR, 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: These 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,’ Professor Panagariya said.
2013 Crisis Compared Again
The Indian economy, Panagariya stated, is in a much better position now as compared to 2013 with inflation much lower now.
‘This is not 2013: Inflation was in the 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.
Inflation Risks Remain Contained
Though consumer price index based (CPI) inflation edged up in April to 3.48 per cent but it remained the RBI’s target of 4 per cent.
The projection may be revised up in the next monetary policy meeting in June as pump prices of diesel and petrol have been hiked in May due to sharp rise in crude oil prices following the West Asia conflict.
Feature Presentation: Ashish Narsale/Rediff
