Highlights
- Duvvuri Subbarao says RBI should allow controlled rupee depreciation
- Rupee acts as a “natural shock absorber” during external economic pressures
- Former RBI chief advises against aggressive interest rate hikes for now
- Suggests liquidity management as first response if inflation rises
- Rupee touched record low of 97.15 against US dollar earlier this month
- Currency weakened amid West Asia crisis and rising crude oil prices
- RBI Monetary Policy Committee meeting scheduled between June 3–5
- Repo rate currently stands at 5.25% after multiple cuts since last year
Updated News
Former Reserve Bank of India Governor Duvvuri Subbarao has advised the central bank to allow further depreciation in the rupee rather than aggressively defending the currency through interest rate hikes, as geopolitical tensions and rising crude oil prices continue to pressure India’s economy.
Speaking ahead of the upcoming RBI Monetary Policy Committee meeting scheduled for June 3–5, Subbarao said the rupee should be permitted to adjust naturally to external pressures because a weaker currency can help absorb economic shocks and improve external balance conditions.
The Indian rupee recently touched a record low of 97.15 against the US dollar amid the ongoing West Asia conflict and global market uncertainty. According to market data, the rupee has weakened around 5% since the start of the crisis and more than 10% over the past year.
Subbarao warned that exchange-rate crises are often driven by market sentiment and confidence. He said fears of further rupee weakness can trigger behaviours such as exporters delaying dollar inflows, importers rushing to buy dollars and investors shifting toward gold, which can worsen pressure on the currency.
The former RBI governor stressed that communication by policymakers is as important as direct intervention in stabilising markets.
He also highlighted the difficult balancing act facing the RBI, as higher crude oil prices are pushing fuel costs and inflation upward while economic growth still requires support. According to him, aggressive rate hikes at this stage could hurt growth and increase economic stress.
Subbarao suggested that if inflation pressures intensify meaningfully, the RBI should first use liquidity management tools instead of immediately increasing policy rates.
The RBI has already reduced the repo rate by 1.25% since last year to support growth, and the current benchmark repo rate stands at 5.25%.
