Using rupee as stabiliser can hurt real economy, ex-Indian central bank official says

A former top official of the Reserve Bank of India warned that letting the rupee act as an automatic stabiliser amid global disruptions can carry real-economy costs. In remarks quoted by Reuters on Oct 22, the ex-central bank official said exchange rates can overshoot in volatile times, triggering sharp moves that spill into investment plans, export competitiveness and inflation dynamics. Such overshooting, he argued, can amplify business-cycle fluctuations rather than dampen them, making monetary policy harder to calibrate and potentially widening external vulnerabilities. The official suggested that policymakers should not rely on the currency for stabilization. Instead, he called for a credible and transparent policy framework—anchored inflation expectations, prudent management of capital flows, and a policy mix that uses a range of tools beyond the exchange rate to smooth shocks. While currency moves can be an instrument, they should not be the primary stabiliser in a volatile global environment. The remarks underline the ongoing challenge for India as it navigates global disruptions and volatile capital flows. The remarks contribute to a broader debate on the appropriate role of the exchange rate in stabilising an open economy facing global disruptions and volatile capital flows.