His comments come as the Indian currency faces pressure from rising crude oil prices, geopolitical tensions and disruptions to shipping through the Strait of Hormuz. The rupee has fallen close to 6% against the dollar this year, reflecting the impact of external pressures and shifting capital flows.
Kotak said uncertainty about the exchange rate level policymakers might be seeking to defend could complicate market expectations. “The markets will be guessing,” he said, arguing that allowing the currency to reflect underlying economic conditions would provide greater clarity.
Stronger economic competitiveness
Beyond exchange-rate management, Kotak said the pressure on the rupee should serve as a signal for India to strengthen its economic fundamentals and improve its competitiveness.
“And at the same time, India has to consider this as an important signal that we need to do a lot more to be competitive, efficient, self-reliant, and stronger in our research and innovation,” he said.
His remarks place the focus on the structural factors influencing the currency, including India's ability to attract capital, improve productivity and reduce vulnerabilities to external shocks.
FM speaks
Finance Minister Nirmala Sitharaman said on Tuesday that the rupee's depreciation in recent months had been significant, with much of the decline driven by global challenges. She added that the Reserve Bank of India (RBI) was taking steps to stabilise the currency and curb volatility.
"They are not trying to fix the rupee. They are trying to stop the volatility. And for that, there is a lot of effort from the RBI side. So, these efforts from the RBI... will continue not to...fix the rupee. We would appreciate it if the rupee finds its own (value)," the minister said.
The rupee had touched a record low of 96.96 per dollar in May before recovering in recent weeks. On Tuesday, it strengthened by 82 paise to 94.96 against the dollar on the interbank order matching system.
RBI tightens forex rules to contain dollar demand
The RBI has introduced several measures to ease pressure on the currency, including restrictions on cancelling and rebooking rupee-linked foreign exchange derivative contracts and tighter documentation requirements for currency transactions.
It has also reduced the threshold for foreign exchange derivative transactions that can be undertaken without establishing an underlying exposure to $5 million from $100 million. In addition, the central bank introduced a 20% foreign exchange risk reserve requirement for specified import-related current account derivative transactions exceeding $2 million.
The RBI has also opened a special dollar window for public sector oil marketing companies to meet their foreign currency requirements, shifting some demand away from the regular foreign exchange market.
The measures aim to moderate speculative activity and ease dollar demand. However, sustained currency stability will depend on global capital flows, crude oil prices and broader external conditions, according to an ICICI Bank report.
Kotak's remarks underscore the debate over whether currency stability is best supported by market-driven price discovery or intervention to limit excessive volatility, even as policymakers seek to manage the immediate pressures on the rupee.