India, May 29 -- Former RBI Governor Duvvuri Subbarao has said the central bank must allow some more depreciation in the rupee to help absorb external pressures, and choose liquidity measures, rather than going for rate hikes, if inflation risks intensify.

In comments that come days ahead of the second meeting of the rate-setting panel for FY27, Subbarao said the monetary policy should be used as a "last resort" to defend the exchange rate.

"RBI may, of course, tighten monetary policy if it believes that to be justified by inflation concerns," Subbarao, who served as the RBI governor between 2008 and 2013, said.

"The rupee should be allowed to adjust rather than be rigidly defended because the current pressures reflect a deterioration ...