IMF reclassifies India’s exchange rate regime to ‘stabilized arrangement’ from ‘floating’
The International Monetary Fund has reclassified India's «de facto» exchange rate regime to «stabilized arrangement» from «floating» for December 2022 to October 2023, the first such instance of such reclassification following an article IV review of the country's policies.
According to the IMF's staff assessment, forex intervention by the Reserve Bank of India likely exceeded levels necessary to address disorderly market conditions and has contributed to the rupee-dollar moving within a narrow range since December 2022.
The IMF's article IV consultation report reviews a country's current and medium-term economic policies and outlook.
In response, India has strongly disagreed with IMF's staff assessment, saying that such a view is «incorrect» and «unjustified».
«The RBI strongly believes that such a view is incorrect as, in their view, it uses data selectively. In their view, staff’s assessment is short-term and restricted to the last 6-8 months without any rationale for the same, and if a longer-term view of 2-5 years is taken, staff’s assessment would fail. In the authorities’ view, therefore, staff’s reclassification of the de facto exchange rate regime to “stabilized arrangement» is unjustified," IMF said in its note expressing RBI concern.
The executive director for India at the IMF, K.V. Krishnamurthy Subramanian and his team of advisers also noted that the IMF staff is «incorrect and inconsistent with reality». They have attributed the rupee depreciation vis-à-vis dollar in 2023 to significant moderation in CAD, the revival of capital flows on the back of a comfortable foreign exchange reserves buffer and India’s macroeconomic stability.
«The global uncertainty, which peaked from December 2019 to November 2022 in
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