Last updated: November 2, 2026, 10:30 PM IST
"Don't fixate on a number." It is a short sentence, and it landed like a challenge. On October 27, 2026, former Reserve Bank of India Governor Raghuram Rajan told Reuters that India should not deplete its foreign exchange reserves trying to defend a particular level for the rupee — and in doing so, he put his finger on the most uncomfortable question in Indian economic policy right now. The rupee is down about 6% in 2026, the second-worst performance in Asia, after touching a record low of 96.96 to the dollar in May. Reports say $75-80 billion has been spent defending it since June, with about half of a $140 billion buffer already used. At what point does defending a currency start doing more harm than the fall it is meant to prevent?
Rajan's intervention matters because of who he is and when he said it. As RBI Governor from 2013 to 2016, he managed India's response to the taper tantrum and built the reserves framework the current management is now drawing on. He is not an outsider throwing stones; he is a former insider warning that the ammunition is finite. And he spoke in a week when the rupee's fight collided with $115 oil, a Federal Reserve holding rates steady, and a central bank visibly intervening — selling dollars ahead of the market open — to keep the currency from sliding further. The debate he started is not academic. It is about how much insurance India is willing to burn, and what happens if a real crisis arrives after the buffer is gone.
What Rajan Actually Said
The core of Rajan's message, as reported by Reuters and carried by Hindu BusinessLine, is a distinction between managing volatility and defending a level. Central banks, in his view, should smooth disorderly moves and prevent panic — that is a legitimate use of reserves. What they should not do is pick a number — 95, 96, or any other line in the sand — and spend whatever it takes to hold it, because markets will test that line, the cost of holding it rises with every test, and the reserves spent defending it are no longer available when they are truly needed.
The logic is worth spelling out. Foreign exchange reserves are insurance. Like all insurance, they are most valuable in a genuine emergency — a sudden stop in capital flows, a global financial crisis, a war-driven oil shock that dwarfs the current one. Spending half a $140 billion buffer in a few months to slow a depreciation driven by fundamentals — a strong dollar, high oil prices, foreign investors selling Indian equities — is like spending your fire insurance premium on repainting the house while it is still smouldering. The house may look better for a while. The fire is still burning.
Rajan's alternative is not to abandon the rupee to the market. It is to let it adjust more freely while keeping reserves for genuine disorder, and to accept that a weaker rupee has an upside that is often forgotten in the panic: it makes Indian exports cheaper and more competitive. For an economy trying to grow its manufacturing exports and reduce its dependence on imported energy, a moderately weaker currency is not purely a curse. The question is whether the depreciation is orderly and driven by fundamentals — in which case it should be allowed to run — or disorderly and driven by panic, in which case intervention is justified. Drawing that line is the RBI's hardest judgement call, and Rajan's point is that "fixating on a number" makes it harder, not easier.
How We Got Here: The Rupee's Difficult Year
The rupee's 2026 has been a grind rather than a collapse. Down about 6% for the year, it has been the second-worst performer in Asia, and its May low of 96.96 to the dollar was a record — a level that shocked a market accustomed to the RBI keeping the currency in a narrower range. Since then, the currency has recovered some ground: by late October it was trading around 95.22, with traders watching the 95.25-95.30 zone as a key resistance level, above which further dollar buying could accelerate.
Several forces have pushed it down. Foreign institutional investors have been heavy sellers of Indian equities — one widely noted figure put October FII selling above ₹52,000 crore — reducing dollar inflows. Oil above $110 raises the import bill and the demand for dollars. The US dollar has stayed strong on the back of a Federal Reserve that held rates at 3.75%-4.00% on October 28, with markets pricing a high chance of a December hike. And the RBI's own interventions, while slowing the fall, have not reversed the underlying pressures — which is precisely why the reserves arithmetic has become so politically sensitive.
The reserves story needs its own context. A separate analysis in late October put the fall in India's forex reserves at $60 billion over six weeks, as the RBI defended the currency — a figure that overlaps with, but is not identical to, the $75-80 billion defence-spending estimate reported around Rajan's interview, since reserve movements also reflect valuation changes, debt repayments and other flows. The exact number matters less than the direction: reserves are falling fast, by tens of billions, in a fight the RBI is not clearly winning. That is the fact that gives Rajan's warning its force.
Why the RBI Intervenes — and Why It Might Be Right to Keep Doing So
Fairness requires the other side of the argument, because the RBI's intervention has defenders with serious points. A rapidly falling rupee raises the cost of everything India imports — oil, fertiliser, electronics, machinery — and feeds directly into inflation at a moment when households are already stretched. It raises the rupee cost of repaying dollar debt for Indian companies. And it can become self-fulfilling: if businesses and investors expect further falls, they rush to buy dollars, accelerating the very decline they fear. Intervention that breaks that psychology can be worth its cost.
There is also the timing. The rupee's weakness has coincided with $115 Brent crude, and the combination of expensive oil and a weak currency is uniquely painful for India: each barrel costs more dollars, and each dollar costs more rupees. The RBI's dollar sales in late October — including selling ahead of the market open, a visible signal of intent — coincided with a modestly dovish reading of the Fed's hold, which gave Asian currencies some relief. The rupee was expected to open in the 95.14-95.18 range on Thursday, October 29, slightly stronger than its 95.22 close — a small win for intervention, and evidence that it can work at the margin.
The real debate, then, is not intervention versus no intervention. It is about dosage and objective. Smoothing volatility and preventing panic: almost everyone agrees. Defending a specific level indefinitely, regardless of cost: almost no serious economist defends that, including, by his own account, the former governor now warning against it. The question for the RBI is where on that spectrum its current policy sits — and whether the pace of reserve depletion suggests it has drifted closer to the second than the first.
What Exporters, Importers and Ordinary Savers Should Take From This
For exporters, Rajan's argument contains a silver lining that is often lost in the gloom: a weaker rupee makes Indian goods cheaper abroad, and if the currency is allowed to find its level rather than being held artificially strong, exporters gain competitiveness that no subsidy can replicate. Textiles, engineering goods, pharmaceuticals and IT services all benefit when the rupee falls in an orderly way. The risk is that a disorderly fall raises their input costs — especially imported raw materials — faster than their revenues rise. Orderly matters more than weak.
For importers and consumers, the message is blunter: a weaker rupee means more expensive fuel, food and gadgets, with a lag. Diesel prices were unchanged in late October despite $115 crude, but that stability is bought, not natural, and the bill for it eventually arrives — in pump prices, in company losses, or in government finances. Households should read the rupee debate not as an abstract market story but as a preview of their own cost of living over the next few months.
For savers, the practical implication is about expectations rather than action. A falling rupee does not mean your bank deposits are unsafe — India's reserves, even after the recent depletion, remain substantial by any historical standard, and the banking system is not at risk from currency moves. What it does mean is that imported inflation may stay sticky, that interest rates may stay higher for longer, and that the returns on rupee assets need to be judged against a currency that is slowly losing value against the dollar. That is a reason to think carefully about long-term savings, not a reason to panic.
What Happens Next
Three markers will tell you whether Rajan's warning is being heeded. The first is the reserves data itself: if the pace of depletion slows in the coming weeks, the RBI is either letting the rupee move more freely or the pressures are easing on their own. If it continues at tens of billions per month, the buffer arithmetic becomes the dominant story of Indian monetary policy. The second is the rupee's behaviour around 95.25-95.30: a sustained break above that zone would invite further dollar buying and test whether the RBI defends a new line or lets the market run. The third is oil: Brent near $115 is the single biggest driver of dollar demand, and any easing there relieves pressure on both the rupee and the reserves simultaneously.
The broader lesson extends beyond this episode. India has spent three decades building reserves precisely so that it would never again face the kind of crisis that forced it to pledge gold in 1991. Reserves are the country's insurance against the world. Rajan's warning is, at bottom, a reminder that insurance is for emergencies — and that the hardest part of holding insurance is resisting the temptation to spend it on problems that, however painful, are not emergencies. A 6% depreciation in a difficult global year is painful. It is not, by itself, a crisis. Treating it as one could leave India less protected when a real one arrives.
Frequently Asked Questions
What did Raghuram Rajan say about the rupee?
On October 27, 2026, the former RBI Governor told Reuters that India should not "fixate on a number" for the rupee or run down its foreign exchange reserves to defend a particular level. He argued reserves should be preserved for genuine emergencies rather than spent holding a specific exchange rate.
How much has the rupee fallen in 2026?
The rupee is down about 6% in 2026, the second-worst performance in Asia, after touching a record low of 96.96 to the dollar in May. By late October it was trading around 95.22, with traders watching the 95.25-95.30 zone as key resistance.
How much has India spent defending the rupee?
Reports put defence spending at $75-80 billion since June 2026, with about half of a $140 billion buffer already used. A separate analysis put the fall in total forex reserves at $60 billion over six weeks, though reserve movements also reflect valuation changes and other flows.
Why does a weaker rupee help exporters?
A weaker rupee makes Indian goods cheaper for foreign buyers, improving export competitiveness. Rajan's argument is that an orderly depreciation driven by fundamentals can benefit exporters — which is one reason defending a fixed level can be counterproductive.
Does a falling rupee mean my savings are unsafe?
No. India's reserves remain substantial, and the banking system is not at risk from currency moves. A weaker rupee mainly affects imported inflation — fuel, food and gadgets may get more expensive — and may keep interest rates higher for longer.
Sources
- Hindu BusinessLine / Reuters — India should not deplete reserves to defend rupee, former RBI chief Rajan says
- Finimize — Raghuram Rajan says India shouldn't defend a rupee number
- WikiFX — Rajan rupee reserves warning follow-up
- Reuters — Rupee eyes mild relief with Asian peers buoyed by modestly dovish Fed
My Personal Take
Rajan is right, and the reason he is right is embarrassingly simple: you cannot repeal arithmetic. If you spend $75 billion defending a level the market wants to break, you will eventually run out of money or credibility, and usually both at once. Central banks that announce a line invite speculators to test it, and speculators with more money than the central bank always win that game in the end. The RBI knows this. The fact that it is intervening anyway tells you how much political pressure there is to be seen doing something — and political pressure is a terrible reason to spend reserves.
But I also have sympathy for the RBI, because "let it fall" is easy to say from a university office and hard to do when diesel prices, food inflation and millions of households are on the other side of the decision. The honest middle path — intervene against panic, not against fundamentals, and never name a number — is the right one, and it is also the hardest one to explain to a public that wants a strong rupee as a matter of pride. Rajan's sentence is useful precisely because it gives that policy a slogan: don't fixate on a number. Fixate on having reserves left when you truly need them.
0 Comments