Arvind Panagariya said the Indian rupee will inevitably depreciate past the 100 per U.S. dollar mark [2].
This perspective suggests a shift in how India manages its currency stability. If the Reserve Bank of India (RBI) aggressively defends a specific price point, it risks depleting the national foreign-exchange reserves to maintain an artificial valuation.
Panagariya, the Chairman of the 16th Finance Commission and former NITI Aayog Vice-Chairman, addressed the issue from New Delhi [1]. He said the central bank should not let the psychology of a round number dictate monetary policy decisions [3].
According to Panagariya, the rupee's decline is driven by the fact that India's inflation remains relatively higher than that of its major trading partners [4]. He said that attempting to hold the currency at the 100 mark would cause reserves to bleed out [2].
At the time of these comments, the rupee was hovering near 97 per U.S. dollar [5]. Panagariya said the RBI should allow the currency to weaken gradually rather than intervening abruptly to stop the slide [3].
"100 is just a number; let rupee depreciate or reserves will bleed out," Panagariya said [2].
He said policymakers should not panic as the currency nears the 100 mark [3]. By allowing the market to dictate the rate, Panagariya said the economy can avoid the volatility associated with sudden, large-scale interventions by the central bank [4].
“"100 is just a number; let rupee depreciate or reserves will bleed out."”
A move toward a more flexible exchange rate would reduce the RBI's burden of maintaining a specific peg, but it could increase the cost of imports. Panagariya's warning highlights the tension between maintaining a psychologically stable currency value and the practical necessity of preserving foreign-exchange reserves to ensure long-term economic resilience.
