Raghuram Rajan urges India to preserve reserves instead of fixing rupee level

Raghuram Rajan, former governor of the Reserve Bank of India, said India should avoid draining its foreign exchange reserves to defend a target rupee level. He pointed out that the rupee has lost roughly 6% so far in 2026 and reached a record low of 96.96 against the dollar in May. Rajan warned that continued high oil prices, rising US Treasury yields, and foreign equity outflows have forced the RBI to intervene more aggressively, risking inflation and financial stability.

He argued that some depreciation can be beneficial by making Indian exports more competitive. Rajan also noted that about half of the over $140 billion secured earlier this year has already been used to support the currency and absorb excess banking liquidity. He cautioned that a resurgence of conflict in the Middle East could further strain oil-importing emerging markets.