RBI right to let rupee adjust, says Gita Gopinath; warns against market distortion – Firstpost

The Reserve Bank of India (RBI) has adopted the right approach by allowing the rupee to move in line with economic fundamentals while intervening only to prevent disorderly market conditions, former International Monetary Fund (IMF) Deputy Managing Director Gita Gopinath said, warning that attempts to artificially prop up the currency could deter foreign investment and undermine economic adjustment.

Speaking on India’s currency management and monetary policy outlook, Gopinath said exchange-rate flexibility remains an important mechanism for economies to absorb external shocks and maintain competitiveness.

“RBI has let the rupee adjust. You should expect the currency to depreciate so that you get the adjustment that you need for the economy,” Gopinath told ANI.

“What you should avoid is intervention that keeps the currency from simply not moving at all. That would be counterproductive because it will also make foreign investors hold off and not bring money into the country because they think the rupee is going to weaken again in the future once the intervention stops.”

Watch the video here:

#WATCH | Mumbai: On RBI’s measures for stabilising rupee, Former Deputy Managing Director, IMF, Gita Gopinath says, “RBI has let the rupee adjust…you should expect the currency to depreciate so that you get the adjustment that you need for the economy. RBI has been doing some… pic.twitter.com/q7Lkj5mKEi

— ANI (@ANI) June 3, 2026

Her remarks come at a time when policymakers across emerging markets are grappling with the fallout from elevated global uncertainty, volatile capital flows and rising geopolitical tensions, particularly in West Asia, which have fuelled concerns over energy prices and inflation.

Gopinath said the RBI’s interventions to smooth excessive volatility and address disorderly market conditions were appropriate, but stressed that policymakers should not seek to prevent currency movements altogether.

The comments also tie into broader concerns around India’s external sector, where a manageable current account deficit is increasingly dependent on stable capital inflows.

According to Gopinath, India’s challenge is not the size of its current account deficit but the weakness in foreign capital inflows, including both portfolio investments and foreign direct investment (FDI).

“In the case of India, a 2 per cent current account deficit is not a big number,” she said in a separate interview with CNBC-TV18. “What has indeed changed is the ability to finance that deficit. The fact that there’s weakness in capital flows coming into India, either through short-term portfolio flows or FDI, is truly where policy action can be helpful.”

RBI likely to remain on hold

On monetary policy, Gopinath said the central bank is likely to maintain a data-dependent approach as it balances inflation risks against signs of moderating economic activity.

“I expect that in the near term, the RBI will likely be on hold, but eventually, depending upon developments and what’s happening with inflation, they can respond,” she said.

She noted that while some inflationary pressures remain, consumer price inflation has not accelerated significantly. At the same time, economic activity appears to be showing signs of softening.

“On one hand, while there is some inflationary pressure, at least we’re not seeing that much in consumer price inflation. On the other hand, there is somewhat softening of economic activity,” she said.

Given the mixed signals, waiting for additional data before taking policy action would be a reasonable approach, she added.

High oil prices pose risk to growth

Gopinath also warned that India’s economic growth could come under pressure if elevated crude oil prices persist, potentially dragging growth closer to 6 per cent from the IMF’s current forecast of 6.5 per cent.

She said higher energy costs would weigh on both household consumption and business investment, creating a drag on economic activity.

“Higher energy costs would affect consumption and investment, leading to slower economic growth than the IMF’s current projection,” she told ANI.

According to Gopinath, oil prices may remain elevated for an extended period and may not return to the $70-$75 per barrel range until the middle of next year.

The risks could intensify if tensions in West Asia escalate further and disrupt global energy supplies.

“If this continues for another month, we’re looking at oil prices that could go up to like $120 and $140 a barrel and could stay there for much longer,” she said.

Such a scenario would not only hurt India but could also weigh heavily on the global economy. Gopinath warned that global growth, currently projected at 3.1 per cent by the IMF, could slow towards 2.5 per cent or even closer to 2 per cent if energy prices remain elevated.

Reform push and AI opportunity

To strengthen India’s investment appeal and reduce pressure on the rupee over the long term, Gopinath called for renewed structural reforms, improvements in the ease of doing business and a stronger narrative around artificial intelligence (AI).

She argued that India is well-positioned to benefit from the AI revolution because of its large technology workforce, vibrant startup ecosystem and strong services sector. However, investors are yet to see a compelling AI-led growth story emerge from the country.

“There should be a good story on AI in India,” she said, adding that AI could ultimately become a net positive for the economy despite concerns about disruption to segments of the information technology services industry.

Gopinath also urged policymakers to seize opportunities arising from shifting global trade patterns and geopolitical realignments.

As countries diversify supply chains and seek alternative manufacturing and services hubs, India has an opportunity to attract greater investment, she said. Realising that potential, however, would require continued deregulation, simpler business rules and reforms aimed at improving competitiveness.

“You have to make it easier to do business in India,” Gopinath said. “This is an opportunity for India to push reforms, deregulate more, make it easier for people to do business, and that would be positive.”