India’s central bank is unlikely to mount an aggressive defense of the rupee despite its sharp depreciation, Axis Bank Ltd. Chief Executive Amitabh Chaudhry said on Monday, citing the need to conserve foreign reserves. “I think they will play it slow. We can’t continue to spend such a huge amount of our reserves on just defending the rupee,” Chaudhry said in a Bloomberg interview on the sidelines of the World Economic Forum in Davos.
The rupee, which was recently among Asia’s best-performing currencies, has tumbled to become one of the region’s weakest. Last week, it fell to a record low of 86 to the dollar and continues to trade below that level.
The currency’s decline comes amid broader economic challenges, with government estimates projecting India’s economic growth at 6.4% in the current fiscal year — a four-year low — driven by slowing urban consumption and a deepening slowdown.
Chaudhry said he is not optimistic about major fiscal support in the annual budget due next month, as the government remains committed to reducing its fiscal deficit. He also expressed doubts about the impact of monetary easing, adding that liquidity injections and support for credit growth are crucial to revitalizing the economy. “But you need to infuse liquidity into the system,” he said. “You need to allow for a slightly higher credit growth.”
Global risks, including a potential U.S.-China trade war, could exacerbate India’s economic challenges, Chaudhry noted, but emphasized that structural reforms were key to addressing domestic issues. “A lot of the things do need to be solved internally in India,” he said.
Axis Bank’s own performance reflects the tough macroeconomic environment. Its shares are trading at their lowest levels since November 2023, following weaker-than-expected earnings for the quarter ended Dec. 31. Higher slippages, increased credit costs, and sluggish deposit growth have weighed on investor sentiment.
Chaudhry said asset quality in India’s banking sector appears to be stabilizing but urged caution. “Asset quality in the banking sector is stabilizing and it will hopefully trickle down in the right direction from here,” he said. “But yes, you have to be watchful because the macro seems uncertain.”
India’s central bank has so far refrained from significant intervention in currency markets, with economists suggesting a more calibrated approach may be aimed at preserving reserves amid ongoing economic headwinds.
