Arvind Panagariya’s advice to RBI: ‘100 is just a number; let rupee depreciate or reserves will bleed out’
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Mains·
Why in news
16th Finance Commission Chairman Arvind Panagariya advised the RBI to allow rupee depreciation against the dollar to prevent the depletion of foreign exchange reserves.
Background
Arvind Panagariya, Chairman of the 16th Finance Commission, cautioned against defending the rupee via dollar-denominated sovereign bonds or high-interest NRI deposits. He argued that rupee depreciation is the appropriate response to oil price fluctuations.
Facts for Prelims
- PostArvind Panagariya is the Chairman of the 16th Finance Commission
- FactThe Rs 100-per-dollar mark is identified as a psychological threshold for currency policy
- FactDollar-denominated sovereign bonds and high-interest NRI deposits are cited as temporary measures to support currency
For Mains
Q. Discuss the trade-offs between maintaining currency stability and preserving foreign exchange reserves in a volatile global oil market.
Dimensions to cover in your answer
- Reserve depletion: Risk of exhausting forex reserves to defend a currency against structural oil price shocks
- Market distortion: Potential for high-interest NRI deposits to create unsustainable fiscal and monetary pressures
Keywords: Foreign Exchange Reserves · Currency Depreciation · Monetary Policy · External Shocks · Fiscal Stability
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