The rupee has been on a roller-coaster ride in recent months, as the global oil shock deepens and tensions in West Asia continue to disrupt energy markets.
With crude oil prices remanding above $100 per barrel amid the ongoing West Asia conflict, many economists now believe the rupee touching 100 against the dollar may no longer be unthinkable.
And interestingly, a growing number of experts also argue that the real risk for India may not be the rupee touching 100 itself, but what happens to inflation, jobs and economic stability alongside it.
Former IMF Deputy Managing Director and Harvard University professor Gita Gopinath recently captured this shift in thinking when she argued that policymakers should focus less on the symbolic exchange-rate level and more on the broader economy.
“The relevant number is not the actual value of the exchange rate,” .
“What matters is jobs, inflation and output,” she said.
That view is increasingly finding support among economists and market experts as India navigates a worsening global energy crisis.
For years, rupee weakness was often viewed almost entirely as a sign of economic stress. But economists say currency depreciation during a major external shock is not automatically a bad thing.
In fact, a weaker rupee can sometimes help economies adjust.
When the rupee falls, imports become more expensive. That naturally reduces demand for foreign goods, lowers pressure on India’s foreign exchange reserves and can improve export competitiveness by making Indian products cheaper globally.
“Rupee depreciation is partly a problem and partly a solution to the problem,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.
“Rupee depreciation boosts exports and at the same reduces foreign exchange expenditure. Expensive dollar can curtail forex expenditure more than austerity appeals. That way it is a solution to the problem,” he added.
This logic becomes especially important during oil shocks.
India imports the majority of its crude oil requirements. With tensions around the Strait of Hormuz disrupting global energy flows, elevated oil prices are already increasing pressure on India’s import bill and dollar demand.
In such situations, economists argue that allowing the currency to weaken gradually can help absorb part of the shock instead of forcing the Reserve Bank of India (RBI) to aggressively burn through forex reserves defending a symbolic exchange-rate level.
The growing argument against aggressively defending the rupee has also found support from former NITI Aayog Vice Chairman and Chairman of the 16th Finance Commission Arvind Panagariya.
In a recent post on X, Panagariya directly mark to shape policy decisions.
“100 is just a number, like 99 and 101,” he wrote.
According to Panagariya, allowing the rupee to depreciate during an oil shock may actually be the more sustainable strategy, especially if elevated energy prices persist for a prolonged period.
“If the oil shortage is long-lasting, a resort to anything other than depreciation will be a losing proposition,” he argued, warning that aggressively defending the rupee could eventually drain India’s forex reserves.
Panagariya also argued that India’s current macroeconomic position is significantly stronger than during the 2013 taper tantrum period, when inflation was running in double digits and the rupee came under severe pressure.
“This is not 2013,” he wrote, adding that India’s relatively lower inflation and stronger monetary management may allow the economy to absorb some depreciation-linked inflationary pressure more comfortably.
His comments reflect a broader shift in economic thinking now emerging around the rupee.
Earlier, sharp currency weakness was often viewed almost entirely as a sign of economic distress. But increasingly, economists are arguing that during a large external shock, allowing the currency to weaken gradually may sometimes be preferable to exhausting reserves trying to defend a symbolic level.
Even so, experts caution that there is a major difference between controlled depreciation and a disorderly currency slide.
A rapidly weakening rupee can quickly become inflationary for an import-dependent economy like India.
Everything from crude oil and fertilisers to electronics and edible oils becomes more expensive when the rupee falls sharply. Those higher import costs eventually spread through the economy through fuel prices, transport costs, grocery bills and manufacturing expenses.
“Expensive dollar leads to imported inflation. That’s why the RBI is trying to stabilise the rupee through intervention,” Vijayakumar said.
According to Kaveri More, Commodity Analyst at Choice Broking, the government and RBI remain highly sensitive to rapid currency depreciation because it can widen India’s current account deficit and create broader macroeconomic instability.
“The Indian government and RBI remain highly sensitive to sharp rupee depreciation because a weaker currency increases India’s import bill, especially for crude oil and gold, widening the current account deficit and raising external financing pressure,” she said.
Higher crude prices have become an even bigger concern after tighter global supply conditions and restrictions on discounted Russian oil intensified dollar demand.
The RBI has therefore been intervening actively in currency markets through dollar sales, liquidity management measures and restrictions aimed at reducing excessive speculation.
But economists increasingly believe the RBI’s objective is not necessarily to stop depreciation completely.
Instead, the focus appears to be on preventing panic-driven moves and excessive volatility.
“To stabilise the rupee, the RBI intervenes through dollar sales, liquidity management, restrictions on banks’ open currency positions, and measures to curb non-essential imports,” More said.
A rapidly weakening rupee can also hurt foreign investor confidence by reducing returns for overseas investors, increasing the risk of capital outflows and creating additional pressure on the currency.
“The RBI’s primary objective is therefore to prevent disorderly depreciation that could trigger inflation, investor panic, and broader macroeconomic instability,” she added.
The discussion around the rupee has shifted significantly in recent months.
Earlier, any sharp weakness in the currency was often viewed as a sign of policy failure or economic distress. But many economists now argue that obsessing over a symbolic level like 100 may be less important than ensuring India’s broader economy remains stable.
That does not mean a weaker rupee is painless.
A prolonged currency slide combined with elevated oil prices could still push inflation higher, raise household costs and hurt growth.
But economists increasingly argue that using up massive amounts of forex reserves purely to defend a psychological number may not always make sense either.
The real challenge for the RBI, therefore, may not be preventing the rupee from touching 100 — but ensuring that the fall remains gradual enough to avoid triggering panic across markets and the wider economy.