'Don't panic over rupee fall': Raghuram Rajan warns against exhausting forex reserves

It touched a record low of 96.96 in May."I think the first response would be, don't panic," Rajan told Reuters, adding that India's current account deficit could widen further if oil prices remained elevated.Rupee depreciation not necessarily a bad thing: RajanRajan, who is currently the Katherine Dusak Miller Distinguished Service professor of finance at the University of Chicago Booth School of Business, said policymakers should take a long-term view of the currency's decline rather than react hastily."I would take a very sensible view and look at the longer term, and examine whether this (situation) is an outlier relative to past episodes," he said.He also argued that a weaker rupee could offer some advantages to the Indian economy, particularly its exporters."Some currency depreciation is not necessarily a bad thing in this kind of environment.

It allows you to stabilise your exports (and) makes your goods more competitive."Rajan warns against spending forex reserves to defend rupeeRajan cautioned India against using up its foreign exchange reserves to maintain the rupee at a particular level, especially given the resources already deployed to support the currency.India has used about half of the more than $140 billion secured through special measures earlier this year to support the rupee and absorb surplus liquidity in the banking system."We just spent a lot of money trying to get the FCNR(B) money in.

It would be a shame if that was quickly spent in defending a level, which historically we haven't done." The rupee has come under pressure from elevated crude oil prices, rising US Treasury yields and continued foreign equity outflows. These factors have prompted the RBI to step up its intervention to contain risks to inflation and broader financial stability. Earlier this month, RBI Governor Sanjay Malhotra did not rule out using monetary policy measures to stabilise the currency.

Middle East conflict could worsen pressure on rupee Rajan warned that oil-importing emerging economies, including India, could face further pressure if the conflict in the Middle East escalated and energy infrastructure in the Gulf region was hit. "As they say, 'you ain't seen nothing yet,' if this really gets that bad." Higher oil prices could increase India's import bill and widen its current account deficit, adding to the pressure on the rupee.

Rajan took charge as RBI Governor in 2013, when India was considered one of the "fragile five" economies amid a period of currency and financial market turmoil. (With inputs from news agency Reuters)