RBI Should Avoid Targeting a Specific Exchange Rate Level, Says Neelkanth Mishra
Mumbai (Economy India): As the Indian rupee continues to trade near its historical low against the US dollar, Axis Bank Chief Economist Neelkanth Mishra on Tuesday said that further depreciation of the domestic currency is likely, but stressed that there is no reason for panic over the current volatility.
Speaking amid heightened concerns over the rupee’s sharp movement, Mishra said that currency fluctuations should be viewed in the context of global macroeconomic conditions, rather than as a sign of domestic economic stress.
Rupee Volatility Not a Cause for Alarm
Mishra noted that the rupee’s recent weakness reflects broader global trends, including:
- Strength of the US dollar
- Global capital flow adjustments
- Divergent monetary policy trajectories
He emphasized that short-term volatility in the exchange rate should not be overinterpreted, particularly when the underlying fundamentals of the Indian economy remain stable.
RBI Should Not Defend a Fixed Level
According to the Axis Bank chief economist, it would be prudent for the Reserve Bank of India (RBI) to avoid defending any specific exchange rate level through intervention.
“It would be sensible for the RBI not to target a particular level for intervention,”
Mishra said.
He suggested that allowing market forces to play a role, while stepping in only to curb excessive volatility, would be a more effective policy approach.
Rupee at Record Low Against the Dollar
The comments come at a time when the rupee is trading at its all-time low against the US dollar, raising concerns among importers, investors, and currency market participants.
Market experts point out that the depreciation trend has been driven largely by external factors, including:
- Persistent strength in the US economy
- Higher-for-longer interest rate expectations in the US
- Global risk aversion affecting emerging market currencies
Balancing Stability and Flexibility
Mishra’s remarks align with the RBI’s long-standing stance of not targeting a specific exchange rate, but instead focusing on:
- Preventing disorderly market movements
- Ensuring financial stability
- Preserving foreign exchange reserves
India’s central bank has repeatedly stated that it intervenes only to smooth excessive volatility, not to manage the rupee at a fixed value.
Expert Credibility and Policy Context
Neelkanth Mishra is also a part-time member of the Prime Minister’s Economic Advisory Council, lending additional policy relevance to his observations.
His comments are being seen as a signal that policymakers and economists are comfortable with a gradual adjustment in the rupee, provided it remains orderly and does not threaten macroeconomic stability.
Impact on Economy and Markets
A weaker rupee can have mixed implications for the economy:
Potential Benefits
- Improved export competitiveness
- Higher rupee earnings for exporters
Challenges
- Higher import costs, especially for crude oil
- Possible inflationary pressures
Economists note that the net impact depends on global commodity prices, domestic demand conditions, and fiscal management.
Axis Bank Chief Economist Neelkanth Mishra’s remarks seek to temper market anxiety at a time of heightened currency volatility. While acknowledging the likelihood of further weakness in the rupee, he emphasized that such movements are part of broader global adjustments and do not warrant undue concern.
The focus, he suggested, should remain on macroeconomic stability, prudent monetary policy, and long-term growth fundamentals, rather than short-term currency levels.
(Economy India)
