‘100 is just a number. Let it depreciate’: Arvind Panagariya to RBI as rupee nears 97/$

As the rupee hovered near the 97-per-dollar mark, Finance Commission chairman Arvind Panagariya on Thursday urged the Reserve Bank of India (RBI) not to let the “psychology” of the Rs 100-a-dollar level dictate policy decisions. He argued that a weaker currency was the right response to the ongoing oil shock.

“Dear @RBI: Do not let the psychology of Rs 100 per dollar determine your policy response. 100 is just a number, like 99 and 101,” Panagariya wrote in a post on X. 

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The noted economist said that, whether the oil shortage proves temporary or prolonged, allowing the rupee to depreciate would be the most practical course. 

“If the oil shortage is short-lived (3 mo to a yr), the rupee will depreciate now but will substantially recover once the oil-import bill shrinks and foreign capital seeks Indian investments precisely to take advantage of the ‘cheap’ rupee,” he said.

He argued that if the disruption lasts longer, attempts to defend the rupee through reserve depletion or costly dollar-linked instruments would fail. “The oil shortage is long-lasting (One to an unknown number of years): A resort 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,” Panagariya said.

The eminent economist also dismissed dollar-denominated bonds and high-interest NRI deposits as temporary fixes. “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 said.

Panagariya drew a contrast with the 2013 currency crisis, when India faced high inflation and macroeconomic stress. 

“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.

He also described dollar-denominated bonds and high-interest NRI deposits as “costly instruments” that largely transfer gains to wealthy overseas Indians. 

The comments came a day after the rupee hit a record low of 96.95 against the US dollar before closing at an all-time low of 96.86 on Wednesday. The currency rebounded on Thursday, rising 49 paise to settle at 96.37 after crude oil prices eased amid signs of easing geopolitical tensions and likely central bank intervention.