Former IMF First Deputy Managing Director Gita Gopinath has endorsed the RBI's handling of the rupee, saying the central bank largely allowed the currency to move in response to economic realities while stepping in selectively to curb excessive volatility and ensure orderly market conditions.
Speaking on the RBI's foreign exchange management strategy, Gopinath said: "Some degree of currency depreciation should be expected as it helps facilitate necessary economic adjustments."
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She noted that the RBI's interventions have largely been aimed at addressing disorderly market conditions rather than preventing the rupee from moving altogether.
According to Gopinath, a policy of aggressively defending the currency could prove counterproductive, as it may discourage foreign investors from bringing capital into the country. Investors, she said, could delay investments if they believe the rupee will eventually weaken once official intervention is scaled back.
On the monetary policy front, she indicated that the RBI is likely to remain on hold in the near term, with future decisions hinging on incoming economic data.
She described the central bank's stance as appropriately data-dependent, balancing inflation concerns against signs of moderating economic activity. While acknowledging the presence of some inflationary pressures, Gopinath said consumer price inflation remains relatively contained.
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At the same time, she pointed to a degree of softening in economic growth, suggesting that policymakers may prefer to wait for clearer signals on both inflation and economic momentum before considering any changes to interest rates.
She said closely monitoring evolving data remains the most prudent course for the RBI.
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