
A Tightrope Walk for the New RBI Governor
India's currency, the rupee, has been facing significant downward pressure in recent months, reaching a record low against the US dollar. This presents a major challenge for the newly appointed Reserve Bank of India (RBI) Governor, Sanjay Malhotra.
Former Chief Economic Advisor (CEA) Arvind Subramanian, in a detailed analysis, outlines the complexities of the situation and the difficult choices confronting the central bank. He argues that the current exchange rate policy, inherited from Malhotra's predecessor, is unsustainable and necessitates a depreciation of the rupee.
a gradual depreciation or a sudden, significant drop. Both options come with their own set of risks. A slow decline could intensify speculative pressures, while a sharp fall could disrupt businesses and the broader economy.
The RBI's dilemma is further compounded by conflicting interests. While exporters favor a weaker rupee for increased competitiveness, the reliance on imported oil makes a weaker rupee detrimental to the import bill. Navigating these competing pressures will be a formidable task for Malhotra.
Subramanian emphasizes the need for transparency and communication from the RBI to manage market expectations and minimize turbulence during the adjustment period. He concludes that the rupee's decline is inevitable, and the RBI must choose the path that minimizes economic disruption while ensuring long-term stability.