Arvind Panagariya has advised the RBI to allow the rupee to depreciate naturally instead of aggressively defending the ₹100-per-dollar level amid rising oil prices and external pressures.
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SANDEEP SAXENA
Economist Arvind Panagariya has urged the Reserve Bank of India not to allow the “psychology” surrounding the rupee breaching the 100-per-dollar mark to dictate its policy response, arguing that depreciation is the appropriate response to a spike in oil-related external pressures.
“Whether the oil shortage is short-lived or long-lived, the right response at this moment is to let the rupee depreciate,” said the chairman of the 16th Finance Commission, in the course of a series of posts on X on Thursday.
Panagariya said the central bank should permit the rupee to weaken rather than spend reserves aggressively defending a particular level. “100 is just a number, like 99 and 101,” he wrote, cautioning against treating the three-digit threshold as economically significant.
Rising crude prices add pressure on rupee
The remarks come amid renewed focus on the rupee’s trajectory as rising crude oil prices and concerns over global energy supplies put pressure on India’s trade balance.
Panagariya posted that if the oil shortage proves temporary — lasting anywhere from three months to a year — the rupee would likely depreciate in the near term before recovering once the import bill moderates and foreign investors return to Indian assets attracted by a cheaper currency.
If the oil shock proves more persistent, however, attempts to defend the rupee through intervention would only drain foreign-exchange reserves without altering the underlying pressures, he said.
“A resort to anything other than depreciation will be a losing proposition,” Panagariya wrote, adding that the central bank would eventually still have to cross the “psychological barrier” of ₹100 per dollar after depleting reserves.
‘This is not 2013,’ says Panagariya
The comments revive memories of the 2013 “taper tantrum”, when the rupee had plunged sharply amid high inflation, widening current account deficits and heavy capital outflows. But Panagariya argued the macroeconomic backdrop today is markedly different.
“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,” he said.
Caution against costly reserve-boosting measures
The former NITI Aayog vice chairman also cautioned against relying heavily on dollar-denominated sovereign borrowing or high-interest foreign-currency deposits from non-resident Indians to shore up reserves. Such instruments, he said, are expensive and amount largely to a transfer of returns to wealthy NRIs because India pays substantially more on these liabilities than it earns on its foreign-exchange reserves.
Published on May 21, 2026
