India should not deplete reserves to defend rupee, says Raghuram Rajan

India should not "fixate on a number" for its currency level or run down foreign exchange reserves to defend the ​rupee, Raghuram Rajan, former Reserve Bank of India governor, said in ​an interview with Reuters on Tuesday.

The rupee has lost about 6% of ‌its value so far in 2026, making it the second-worst performing currency in Asia, and hit a record low of 96.96 in May.

"I think the first response would be, don't panic," Rajan told the Reuters Global Markets Forum, warning that there was scope for the current account deficit to widen further if oil prices stayed elevated.

High oil prices, surging US Treasury yields and continuing foreign equity outflows have compelled the central bank to step up intervention to limit cascading risks to inflation and broader financial stability.

Earlier this month, RBI Governor Sanjay Malhotra ‌did not rule out using monetary policy measures to stabilise the currency.

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"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," said Rajan, now the Katherine Dusak Miller Distinguished Service professor of finance at the University of Chicago Booth School of Business.

"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."

India has deployed about half of the over $140 billion secured through ‌special measures earlier this year to support its currency and absorb surplus banking system liquidity.

"We just spent a lot of money trying to get the FCNR(B) ​money in. ‌It would be a shame if that was quickly spent in defending a level, ‌which historically we haven't done."

If the Middle East war reignites and Gulf energy infrastructure is hit, oil-consuming emerging markets would suffer, he said.

"As they say, 'you ain't seen ‌nothing ​yet,' if this ​really gets that bad."

Rajan took charge as the RBI chief in 2013, at the time of a crisis when India was seen as part ‌of the "fragile five" economies. 

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