The IMF should revise its opinion on the Indian rupee’s managed float
RBI) had intervened “excessively" in the foreign exchange market to influence the rupee’s value. The Fund argued that from December 2022 to October 2023, our currency’s movement was “too restricted" (it traded between ₹80.88 and ₹83.42 to the US dollar). This narrow trading range, it says, was not a reflection of any improvement in our external position, as the Reserve Bank of India (RBI) reportedly said in its rebuttal, but the result of excessive RBI intervention “beyond what was required to manage market conditions." As a result, pursuant to its Article IV review, the Fund has reclassified India’s exchange-rate regime from “floating" to a “stabilized arrangement" for that period.
One could dismiss the Fund’s reading as nothing but semantics. Except that it matters. Till such time as the global comity of nations comes up with a better institutional framework, the Bretton Woods twins do count in the economic arena, just as the UN does in world politics, despite their diminishing relevance.
However, it does not mean we must accept their views. Back in 2018, when the US placed India on its watch-list of currency manipulators, India held its ground. So should we today.
Who is to determine what is kosher when it comes to forex intervention? Policymakers who have a better overall picture of the economy and our long-term interests in mind? Or armchair economists at the Fund? It’s sad that the Bretton Woods twins still reflect a Western view. It was not long ago that the IMF was a harsh critic of capital controls and tried to brainwash all emerging economies into full capital account convertibility. Some nations took that advice and dismantled all controls—but to their cost, as they found during the Asian currency crisis of
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