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Informist, Wednesday, Nov. 26, 2025

 

--IMF: India's de facto exchange rate arrangement classified as 'crawl-like' 
--IMF: India's de jure exchange rate arrangement classified as 'floating' 
--IMF: Greater exchange rate flexibility to help India absorb external shocks 
 

NEW DELHI – The International Monetary Fund has reclassifed its classification of India's de-facto exchange rate regime as a 'crawl-like' arrangement, from 'stabilised', the multilateral body said Wednesday. IMF had classfied India's de facto exchange rate regime to 'stabilised' in December 2023.   

 

"While interventions have generally declined in recent months and the rupee/USD exchange rate has exhibited increased two-way movements, the RBI has continued to use FX intervention regularly," the IMF said in its country report titled 'India: 2025 Article IV Consultation'.

 

India's de-jure exchange rate arrangement has been maintained as 'floating', the multilateral body said. An arrangement will be considered crawl-like with an annualised rate of change of at least 1%, provided that the exchange rate appreciates or depreciates in a sufficiently monotonic and continuous manner, according to the IMF. 

 

The classification of the de facto exchange rate arrangement is based on a statistical methodology that is implemented by the IMF staff evenhandedly across member countries. The methodology follows a backward-looking statistical approach that relies on past exchange rate movement and historical data. 

 

The exchange rate reclassification comes at a time when the rupee is hovering near its record low. The Indian currency has depreciated 4.3% against the dollar so far this calendar year as the impact of steep US tariffs on India plays out. Moreover, the RBI under Governor Sanjay Malhotra has been seen as allowing more volatililty in the Indian currency, compared with one during his predecessor Shaktikanta Das' regime. The IMF had earlier classifed India's exchange rate to 'stabilised' arrangement due to the RBI's excessive intervention in the currency market to keep the rupee stable. 

 

IMF said that while the exchange rate has exhibited increasing two-way movement this year, there remains room for additional exchange rate flexibility, with interventions limited to periods of destabilising risk premia, considering India's relatively low foreign exchange mismatch, well-anchored inflation expectations, and generally deep forex market.

 

The IMF directors broadly recommended greater exchange rate flexibility to help the Indian economy absorb external shocks, with interventions aimed at addressing disorderly market conditions consistent with the Integrated Policy Framework. Greater exchange rate flexibility would help India to absorb external shocks, with the central bank's foreign exchange intervention limited to addressing destabilising risk premia, they said.

 

"Allowing greater exchange rate flexibility would help absorb external shocks, reduce the need for costly reserve accumulation, encourage FX market development, strengthen incentives for firms to hedge currency risk, and help moderate liquidity fluctuations in the domestic financial system," the report said. 

 

It added that the regular publication of foreign exchange interventions by the RBI has greatly fostered transparency, and could be further supported by enhancing communications around the objectives and triggers of foreign exchange interventions.

 

In response to the IMF officials' remarks and recommendations, Indian authorities maintained that the rupee's exchange rate has been market determined without the targeting of any particular level. They felt that exchange rate movements largely reflected India's favorable fundamentals, with interventions, if and when undertaken, aimed at containing excessive volatility. End

 

Reported by Pratiksha

Edited by Akul Nishant Akhoury

 

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