Rupee's depreciation: Why it makes sense not to sit back and do nothing yet

Defending the currency would require increasing interest rates, which might harm growth

US economic policy has shifted in favour of big deficits and higher interest rates. This sucks global capital into the US. That gives stress in asset prices and exchange rates in emerging markets. We should recognise these macro fundamentals and accept exchange rate depreciation. The RBI's mandate is 4 per cent CPI inflation, and not an exchange rate target. If a currency defence is attempted, it will make things worse, as happened in 2013.

In the last year, US economic policy has moved in two directions. Monetary policy normalisation has been taking place, with rates coming off the near-zero levels.