Arvind Panagariya, chairman of the 16th Finance Commission, has advocated for allowing the rupee to depreciate to ₹100 per dollar and beyond, instead of defending the psychologically important ₹100-per-dollar level. According to his latest social media post on X platform on May 21, 2026, Panagariya stated that the Reserve Bank of India should not let "the psychology of Rs 100 per dollar determine your policy response," arguing that "100 is just a number, like 99 and 101." He emphasized that whether the current oil supply shock proves temporary or prolonged, the appropriate response is to let the rupee depreciate, stating that "the right response at this moment is to let the rupee depreciate."
The rupee has hit a record low of nearly ₹97 per dollar this week amid higher crude oil prices, persistent foreign fund outflows and concerns over India's widening trade deficit. As reported by Bloomberg, the central bank is considering options including a possible interest rate hike, additional currency swap auctions, raising dollar deposits from non-resident Indians and even issuance of sovereign dollar bonds to stabilise the currency. On May 21, 2026, the rupee nearly touched ₹97 to a dollar in intraday trade, with traders indicating that the RBI intervened to prevent it from crossing that limit. According to DSP Mutual Fund, the USD/INR crossed 96.9 in May, with the rupee's Real Effective Exchange Rate (REER) standing at 89.7 at the end of April and likely slipping below 88 after this milestone.
Panagariya warned that attempts to defend the rupee through reserve depletion or expensive dollar-raising schemes would ultimately prove unsustainable. According to The Economic Times, he stated that "Trying to defend the rupee will continue to bleed the reserves until they are exhausted," adding that "eventually, you will have to cross the 100-rupee-per-dollar psychological barrier." However, he argued that if the oil shortage proves temporary, the rupee could recover once the import bill eases and foreign investors are attracted by a cheaper currency. If the oil shortage lasts longer than a year, he said that resorting to "anything other than depreciation will be a losing proposition," emphasizing that "it is largely a transfer to rich NRIs."
Despite current weakness, DSP Mutual Fund argues that the rupee's REER levels have historically been seen mainly during major stress periods including the 2008 Global Financial Crisis and the 2013 twin-deficit crisis. The report suggests that betting aggressively against the Rupee at current valuation levels could be a low-probability trade. India's changing inflation profile shows the inflation differential with the United States has narrowed sharply to around 1-2% from the historical 3.5-4% gap, with US inflation averaging 2.8% while India's averaged 2.3% over the last year. DSP notes that India's services exports currently exceed $418 billion annually with a surplus of around $214 billion, while inward remittances are above $135 billion, creating substantial cushion for India's external account.
The RBI's monetary policy committee is scheduled to meet on June 3-5, with the central bank having kept its benchmark repo rate unchanged at 5.25% this year. As reported by Bloomberg, several economists expect a rate hike in the coming months as inflation pressures build. Panagariya criticised the use of dollar-denominated bonds and high-interest NRI deposits, calling them "costly instruments that pay significantly higher interest" than the rate India earns on its own foreign-currency reserves. He argued that these schemes are "largely a transfer to rich NRIs" and would amount to "a band-aid" rather than a sustainable solution. The RBI's foreign exchange reserves have declined by around $29 billion this year, raising concerns over reserve adequacy, though DSP notes that reserve movements and forward positions are cyclical and not unusual.
