'Don't Panic': Raghuram Rajan Warns RBI Against Depleting Forex Reserves To Defend Currency

Former Reserve Bank of India Governor Raghuram Rajan has cautioned against using significant foreign exchange reserves to defend a specific rupee exchange rate, urging policymakers to adopt a long-term perspective. India's currency has weakened by around 6% in 2026, placing it as Asia's second-worst performer. In May, it reached a record low of 96.96 against the US dollar.

Rajan advised against panicking and suggested the first step should be to not panic. He urged the US Federal Reserve to raise interest rates to tackle persistent inflation. Currency depreciation might support Indian exports, but he cautioned that persistently high crude oil prices could widen India's current account deficit. The RBI has been stepping up market interventions to contain inflation and financial stability risks.

Rajan advised policymakers to assess if present currency movements were exceptional. India has reportedly used about half of the $140 billion raised through special measures this year to support the currency and manage banking liquidity. He questioned whether funds from Foreign Currency Non-Resident bank deposits should be rapidly used to defend an exchange rate, stressing that India has historically avoided maintaining a fixed currency level.