In this episode, journalist and author Puja Mehra speaks with Rajeswari Sengupta, Economist and Associate Professor at Indira Gandhi Institute of Development Research (IGIDR), about the recent volatility in the rupee and the Reserve Bank of India’s response to it. They discuss how global shocks—from the West Asia conflict to sustained capital outflows—have exposed deeper structural vulnerabilities in India’s external sector.

Sengupta explains how the rupee’s weakness is not just cyclical but rooted in fundamentals, including rising import dependence, especially on energy, and weakening foreign capital inflows. Against this backdrop, they examine the RBI’s increasingly aggressive intervention to stabilise the currency.

But are these measures addressing volatility, or attempting to influence the level of the exchange rate itself? What does this mean for the rupee’s role as a market-driven price, and for India’s ambitions of greater financial openness?

Tune in for insights into the tensions between currency management and market forces, and what it means for the future of India’s exchange rate framework.

CHAPTERS

(00:00) Pressures on the Rupee

(01:09) West Asia War Impact

(02:30) Energy Import Dependencies

(04:32) Sustained Capital Outflows

(06:14) Financing Current Account Deficit

(08:03) RBI’s Intervention Methods

(10:14) Offshore Arbitrage and Banks

(11:58) Unprecedented Regulatory Measures

(13:16) Impact on Indian Banks

(15:42) Risks of Policy Flip-Flops

(16:59) Cost of Hedging Exposure

(21:20) Value of Market Speculation

(26:38) Rupee as Shock Absorber

(31:07) Recommendations for Future Policy

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