Shenoy claimed that the central bank is not doing enough to halt the rupee’s drop, which recently had its worst one-day decline in over two years, ending at 86.62 vs the US dollar.
If the RBI does not step in and permit a free market, the rupee might gain 15–25% over the next two years, according to Capitalmind CEO Deepak Shenoy on Wednesday. The rupee recently saw its biggest one-day slide in over two years, ending at 86.62 versus the US dollar, and he stated the central bank is not doing enough to halt it.
“The rupee will appreciate by 15-20% in two years if you allow a free market,” he stated in an interview with ThePrint. “Because India’s economy is expanding at a very fast pace. It is among the nations that will draw in foreign investment. The rupee would gain value if that investment materialized and the RBI chose not to purchase it as the demand for rupees would exceed the supply or surpass the demand for dollars.
The market dynamics were further stated by Shenoy: “If you bring me dollars and say, ‘Give me rupees instead.’ I’ll just keep giving you less rupees each time you bring me dollars.” Since demand is so great, it’s as though the price of an item increases when it’s in high demand.
Shenoy claimed that “the RBI is not doing enough” was the reason behind the rupee’s decline when asked why it was declining. Nearly all of India’s dollar holdings, he claimed, are under central bank management. “It prevents other individuals from owning money. If you look at the total number of dollars in the system, the central bank owns the majority. Therefore, individuals will turn to the central bank when they need money.
Currency stability, he contended, is constrained by the absence of a strong dollar transaction market. “The market could then satisfy all of these desires if you were permitted to hold dollars in a more meaningful way. This would allow you to have true capital account convertibility of some kind, which would allow the banks to possess much more dollars. RBI’s involvement dictates whether the rupee strengthens or weakens in situations when there isn’t a market that size.
The renowned investment manager said that if one considers the disparity in inflation between India and the nations we deal with, the recent devaluation is more concerning. India’s inflation rate is between 4.5 and 5%, whereas the US’s is between 2.5 and 3%. Additionally, he stated that the rupee should weaken by about 2.5 percent annually.
“But in the past month, we’ve lost 2.5 percent of our value. The US had significantly greater inflation prior to this. The RBI caused us to devalue when we ought to have appreciated. By forcing the rupee to weaken under the pretext of accumulating reserves, the central bank intervened in the foreign exchange market. These reserves are unnecessary for us. We currently have an issue because RBI is not selling enough, even though they need to be selling a lot, and money is leaving the country.”
In order to halt the rupee’s decline, Shenoy recommended that the RBI sell additional dollars. The RBI has spent around $100 billion over the past two years. They should sell the majority of it, so why not? This type of (FII) outflow was seen in the past. However, the rupee was more stable at the time since the RBI did sell. They abruptly chose not to sell, which is odd because we ought to be letting the rupee gain value as well. If you are allowing it to go down, you ought to allow it to go up. When the flow of money arrives, let it reach 60-65 rupees.
India’s foreign exchange reserves peaked in September 2024 at $704.885 billion, but they have since declined to $634.585 billion in January 2025. Shenoy maintained that the nation’s requirements are far outweighed by these reserves. The amount of money you have saved is far more than what you (RBI) require. Thus, your reserves will last for six to ten years. Even if there is a current account deficit for five or six years, it will only amount to $250 to $300 billion.
According to the CEO of Capitalmind, India may increase its reserves by permitting its citizens to make foreign investments through mutual funds. “MFs are only allowed to invest a maximum of $8 billion in overseas stocks. Make it $100 billion. Indian nationals should own $100 billion in foreign mutual funds. You can always return the money in an emergency. Make them sell, and then return the money. It’s not an issue. However, that money is not held by the RBI, but by the people.
Shenoy questioned if keeping such large reserves was necessary and if they would be helpful in an emergency. “What Russia did…Russia didn’t say I’ll give you money even though America has confiscated my money. “Boss, you guys stole my dollars, and I’ll steal your companies that have come to me,” they declared, closing these American enterprises in Russia. That is precisely what will occur during a severe emergency.
“That is the way to handle the dire circumstance. Dollar reserves of this magnitude are unnecessary. What are these currency reserves used for? America threatens to freeze all of your money if we clash with Pakistan tomorrow. Will you do anything with that? It is incorrect for the RBI to use the conventional method to assess whether the rupee is higher or lower than it should be.