Raghuram Rajan: Even If the Rupee Falls, It Remains Valuable

Raghuram Rajan, former Governor of the Reserve Bank of India (RBI), recently shared his views on the rupee’s depreciation against the US dollar at the World Economic Forum (WEF) in Davos. Despite the rupee weakening in value, Rajan emphasized that it still remains stronger compared to many other currencies globally.

Rajan pointed out that the depreciation of the rupee against the US dollar is not something to be overly concerned about. He explained that many currencies worldwide are experiencing similar trends. In fact, he mentioned that the real effective exchange rate (REER) of the rupee is still overvalued when compared to other currencies, indicating the potential for further depreciation. This overvaluation, however, could benefit Indian exports in the future, as a relatively stronger rupee would make Indian goods more attractive in the global market.

Rajan also stated that there is no need for the Reserve Bank of India (RBI) to intervene in the currency market to protect the rupee’s value. According to him, central banks should avoid trying to manipulate the currency to increase its value in response to economic changes. They should only take measures to reduce short-term volatility, not interfere with market forces. He added that the rupee’s depreciation, the strengthening of the US dollar, and other global economic shifts should be viewed as natural market adjustments.

Rajan further warned about the potential for the US to use its currency dominance as a weapon in global economic relations. He expressed concern that the US dollar could be used to impose economic tariffs, creating an economic "currency war" that is troubling central bankers around the world.