'100 is just a number': Economist Arvind Panagariya tells RBI not to lose sleep over rupee slide

Depreciation is the right response to the oil shock, he says and advises the central bank not to let the 'psychology of Rs 100 per dollar' determine its policy response

Economist Arvind Panagariya has urged the Reserve Bank of India (RBI) not to allow the “psychology of Rs 100 per dollar" determine its policy response, arguing that depreciation is the appropriate response to a rise in oil-related external pressures.

"Do not let the psychology of Rs 100 per dollar determine your policy response. 100 is just a number, like 99 and 101. Whether the oil shortage is short-lived or long-lived, the right response at this moment is to let the rupee depreciate," chairman of the 16th Finance Commission and former vice chairman of NITI Aayog said in a thread on X.

If the shortage is short-lived, that is for three months to a year, the rupee will substantially recover once the oil import bill shrinks and foreign investors look to buy cheaper Indian assets, he said.

Rupee, the worst-performing Asian currency, has depreciated 6.6 per cent in 2026. On Thursday, the Indian unit gained 0.65 per cent and closed at 96.20 a dollar, reversing a nine-day losing streak.

If the oil shortage lasts long, Panagariya said that resorting to anything other than depreciation would be a "losing proposition". “Trying to defend the rupee will continue to bleed the reserves until they are exhausted.”

Panagariya cautioned against the central bank resorting to steps such as offering higher deposit rates to non-residents to attract inflows.

"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."

Referring to 2013 when the rupee had plunged sharply amid high inflation, Panagariya said, “This is not 2013: Inflation was in the double digits in 2013. Thanks to your [the RBI’s] 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.”

The former NITI Aayog vice-chairman also cautioned against relying heavily on dollar-denominated bonds or high-interest foreign-currency deposits from non-resident Indians to shore up reserves. "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," he said.