Raghuram Rajan: India should not deplete forex reserves to defend rupee
By Neha KapoorEconomy Correspondent, Peepals Business
File photo: Ministry of Finance of India (GODL-India), via Wikimedia Commons
Ex-RBI governor Raghuram Rajan said on October 27, 2026 India should not spend reserves defending a rupee level, as the rupee is down about 6% this year.
What Happened
Former Reserve Bank of India (RBI) governor Raghuram Rajan has said India should not target a specific exchange rate or run down its foreign exchange reserves to defend the rupee. In a news agency interview published on Tuesday, October 27, 2026, Rajan said some weakness in the currency can help by making Indian goods more competitive abroad, and warned that India's current account deficit could worsen if high oil prices persist. The rupee has lost about 6% of its value so far in 2026, making it the second-worst-performing currency in Asia, according to the interview report.
Key Facts
- Who and when: former RBI governor Raghuram Rajan, in an interview published on October 27, 2026.
- Main point: India should avoid targeting a particular exchange rate or exhausting its reserves to defend the rupee.
- Exports: some currency weakness can make Indian goods more competitive and support exports, he said.
- Reserves: India has used about half of the more than $140 billion raised through special measures earlier this year, including foreign currency deposits from non-resident Indians; Rajan said spending that money quickly on a currency level would be a shame.
- Risk: he warned the current account deficit could widen if trends continue, with elevated oil prices the main concern.
- Rupee: down about 6% in 2026 so far, the second-worst performer in Asia, the report said.
Why It Matters
The rupee's value against the US dollar affects almost everyone in India. A weaker rupee makes imports such as crude oil, electronics and gold more expensive, which can push up inflation. It also makes Indian exports cheaper for foreign buyers, which helps exporters, IT companies and remittance-receiving families.
When the rupee falls quickly, the RBI can sell dollars from its reserves to slow the decline. That is what the debate is about. Rajan's argument is that reserves are a safety cushion for real emergencies, such as a sudden flight of foreign money, and should not be spent trying to hold the rupee at a particular level. Spending them to resist a fall that reflects real pressures, such as expensive oil, may only delay the adjustment while leaving the country with a thinner cushion.
His remarks on the special measures are pointed. Earlier this year India raised large sums through schemes such as FCNR(B) deposits, which are foreign-currency deposits by non-resident Indians in Indian banks, to strengthen reserves. Rajan's view is that using up roughly half of that money quickly to support a currency level is something India has not done before and should avoid.
The current RBI has said publicly that it targets no specific level for the rupee and intervenes only to curb speculation and excessive volatility. Rajan's comments add an influential outside voice to the question of how much intervention is too much, at a time when oil prices are high and the current account is under strain.
| Measure | Reported figure |
|---|---|
| Rupee change in 2026 so far | About -6% |
| Rank in Asia | Second-worst performing currency |
| Raised through special measures in 2026 | More than $140 billion |
| Share of that already used | About half |
Impact
Short-term: Rajan's remarks may add to debate over the pace of RBI dollar sales. Markets will watch whether the central bank allows a more gradual fall in the rupee.
Long-term: Letting the currency adjust can support exports and protect reserves, but it raises import costs and can feed inflation. How India balances the two will shape its trade deficit, inflation and investor confidence in 2027.
Who is affected: Importers and consumers of fuel and electronics; exporters and IT services firms; non-resident Indians holding FCNR(B) deposits; students paying foreign fees; and investors tracking the RBI's policy.
Key Takeaway
Raghuram Rajan said on October 27, 2026 that India should not spend its reserves defending a particular rupee level, arguing that some weakness helps exports and that reserves should be kept as a cushion as oil prices strain the current account.
Questions and Answers
What did Raghuram Rajan say about the rupee?
In an interview published on October 27, 2026, he said India should not target a specific exchange rate or deplete its forex reserves to defend the rupee, and that some weakness can help exports.
How much has the rupee fallen in 2026?
About 6% so far this year, making it the second-worst-performing currency in Asia, according to the interview report.
What are FCNR(B) deposits?
They are foreign-currency deposits held by non-resident Indians in Indian banks. India used them, among other special measures, to raise more than $140 billion earlier in 2026.
Does the RBI defend a fixed rupee level?
The RBI has said it targets no specific level and intervenes to curb speculation and excess volatility.
Disclaimer: Prepared by the Peepals newsroom from publicly available sources with AI assistance. Information is accurate to the best of our knowledge at the time of publication and may change. Images may be representative. Not professional advice. Report an error via our contact page.
By Neha Kapoor, Economy CorrespondentCovers Economy and more for Peepals Business. All stories by Neha Kapoor
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Neha Kapoor is a pen name of the Peepals Global Editorial Team, which researches, fact-checks and publishes every story. The portrait is an illustration.
