In the early months of 2026, the Indian rupee slipped 6 percent against the dollar, a slide that sent shockwaves through markets and brought the currency to a record low of 96.96 in May. For a country whose economy is a global engine, such a fall is more than a headline; it signals a shift in investor sentiment, a tightening of trade balances, and a potential squeeze on the nation’s foreign‑exchange reserves.
The rupee’s decline is not an isolated blip. It has become the second‑worst performing currency in Asia that year, a status that brings both scrutiny and pressure on policymakers to act. Yet the path to a stronger rupee is not as clear‑cut as some pundits would like.
On 27 October 2026, Raghuram Rajan, who served as governor of the Reserve Bank of India (RBI) from 2013 to 2018, issued a stark warning: “Resist temptation to defend ₹ at any cost.” His words came at a time when the RBI’s foreign‑exchange reserves—amounting to 140 billion dollars—were under threat of depletion if the central bank intervened aggressively.
This, in turn, can help balance the trade deficit and support domestic industries.
Rajan’s admonition is rooted in a practical concern: using reserves to prop up the rupee can be a short‑sighted gamble that erodes the very buffer the country needs to weather shocks. By drawing on reserves, the RBI would be running down a safety net that could otherwise absorb future turbulence.
The rupee’s 6 percent loss is more than a percentage; it represents a tangible erosion of purchasing power for Indians and a shift in the balance of trade. Meanwhile, the RBI’s 140 billion dollars in foreign‑exchange reserves—raised earlier this year—are a critical resource for stabilising the currency and ensuring confidence in the financial system.
Rajan’s emphasis on the reserves underscores a broader point: the central bank’s toolkit is finite, and over‑reliance on one instrument can backfire. The reserves are not a currency‑defence mechanism but a strategic asset meant to safeguard against systemic risk.
In a follow‑up statement, Rajan added, “India should not ‘fixate on a number’ for its currency level or run down foreign exchange reserves to defend the rupee.” The phrase “fixate on a number” captures a common but dangerous narrative—an obsession with a specific exchange‑rate target that ignores the underlying fundamentals.
When policymakers chase a particular figure, they risk creating a self‑fulfilling prophecy: market participants, seeing the central bank’s attempts to defend that level, may react in ways that undermine the very target they seek to maintain. Rajan’s advice is a call to look beyond the headline and to consider the broader economic context.
Contrary to conventional wisdom that a weaker currency is always bad, Rajan points out that “some currency depreciation is not necessarily a bad thing in this kind of environment. It allows you to stabilise your exports (and) makes your goods more competitive.”
A weaker rupee can make Indian exports cheaper on the global stage, boosting demand for goods ranging from textiles to software. This, in turn, can help balance the trade deficit and support domestic industries. Rajan’s perspective invites a nuanced view: depreciation can be a strategic lever rather than a purely negative shock.
Rajan’s overarching theme is a sensible, long‑term approach. He says, “I would take a very sensible view and look at the longer term, and examine whether this (situation) is an outlier relative to past episodes.” By framing the rupee’s decline as a possible outlier, he encourages policymakers to assess whether the current conditions warrant a temporary adjustment or a more permanent shift.
This long‑term lens is essential because short‑term interventions—such as selling reserves to prop up the rupee—can create a false sense of stability. Over time, however, the underlying economic forces will dictate the currency’s trajectory, and a measured response is likely to be more sustainable.
The RBI’s mandate is to maintain monetary stability, and part of that involves managing foreign‑exchange reserves. Rajan’s comments remind us that reserves are not a currency‑defence tool but a buffer against external shocks. By preserving these resources, the RBI can better navigate future crises, whether they stem from global commodity price swings, geopolitical tensions, or sudden capital outflows.
In the current climate, where the rupee’s value is under pressure, the RBI must balance the need to support the currency with the imperative to safeguard its reserves. Rajan’s guidance is a timely reminder that the central bank’s actions should be guided by prudence and a long‑term perspective.
Today, the rupee remains under pressure, but the market has not yet seen a decisive intervention from the RBI. Rajan’s counsel—avoiding a fixation on a specific exchange‑rate level, preserving reserves, and recognizing the potential benefits of moderate depreciation—provides a roadmap for policymakers.
The central bank’s challenge is to navigate between the twin imperatives of maintaining confidence in the currency and protecting the country’s long‑term economic health. Rajan’s words, grounded in his experience as governor, serve as a compass for that delicate balancing act.
In a world where markets can swing on a single tweet, Rajan’s message is a plea for calm. By resisting the urge to defend the rupee at any cost, by keeping reserves intact, and by embracing a longer‑term view, India can steer its currency through turbulent waters without compromising its economic future.