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Rupee level not a threshold, exchange rate a shock absorber: CEA Nageswaran
🇴🇲 Oman /Economy & Trade

Rupee level not a threshold, exchange rate a shock absorber: CEA Nageswaran

From Times of Oman · () English

Summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • India's Chief Economic Adviser V. Anantha Nageswaran stated that the rupee's exchange rate should not be viewed through fixed psychological thresholds like 100 per dollar.
  • He emphasized that the exchange rate acts as a "shock absorber" in a volatile global environment, adjusting to external shocks like energy price spikes or geopolitical tensions.
  • Nageswaran advised against rigidly defending a specific currency level, suggesting it could be counterproductive and that policymakers should focus on managing confidence, capital flows, and domestic growth instead.

The movement of the Indian rupee is a natural macroeconomic adjustment and should not be confined by psychological levels like 100 to the dollar, according to Chief Economic Adviser V. Anantha Nageswaran. He stressed that the exchange rate serves as a crucial "shock absorber" in today's volatile global economic climate.

The exchange rate is a natural shock absorber.

— V. Anantha NageswaranDescribing the role of currency fluctuations in managing economic shocks.

Nageswaran explained that currency depreciation should be understood within the context of external shocks, global uncertainty, and shifting capital flows, rather than as an indicator of domestic economic weakness. He noted that when economies face disruptions, such as energy price surges, supply chain issues, or geopolitical tensions, the exchange rate is often the first element to adjust. "The exchange rate is a natural shock absorber," he stated, warning that attempting to rigidly defend a particular level could harm the broader economy.

Policymakers, he elaborated, face a trade-off during periods of global stress: they can tighten monetary conditions to support the currency or allow the exchange rate to adjust while safeguarding domestic growth and inflation. Addressing concerns about the rupee crossing the 100-per-dollar mark, Nageswaran dismissed such levels as arbitrary "Lakshman Rekha" (a line that should not be crossed). He emphasized that the critical factor is whether currency movements erode confidence, leading to excessive hedging, reduced capital inflows, or delayed export payments.

The exchange rate is a natural shock absorber.

— V. Anantha NageswaranEmphasizing the function of the exchange rate in absorbing external economic pressures.

Furthermore, Nageswaran highlighted that the rupee's depreciation must be considered alongside India's import structure. While a weaker rupee increases the cost of essential imports like crude oil, it can also boost the competitiveness of domestic industries and discourage non-essential imports, thereby supporting local production and exports. India's policy framework prioritizes building buffers through measures like strengthening foreign exchange reserves and managing the current account deficit, rather than resisting every short-term currency fluctuation. Exchange rate flexibility, he concluded, is integral to macroeconomic stability in an interconnected world.

It is not about a particular number.

— V. Anantha NageswaranStating that specific currency levels are less important than the overall stability and confidence in the economy.
DistantNews Editorial

Originally published by Times of Oman. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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