IMF Reclassifies India's Exchange Rate Regime, India Dismisses Rationale
The Wire Staff
New Delhi: The International Monetary Fund has reclassified India's exchange rate regime to "stabilised arrangement" from "floating" for the period from December 2022 to October 2023. In response, the Reserve Bank has told the IMF that the objective of frequent interventions in the forex market is to curb excessive volatility.
RBI has also, according to Business Standard, dismissed the Fund's rationale for reclassifying India's exchange rate regime.
In a statement, India's executive director at IMF, K.V. Subramanian and senior advisors Sanjay Kumar Hansda and Anand Singh, said the classification is "incorrect and inconsistent with reality."
"As in the past, exchange rate flexibility would continue to be the first line of defence in absorbing external shocks, with interventions limited to addressing disorderly market conditions, " they said, according to Business Standard.
RBI has always claimed that its interventions in the interbank market which determines the exchange rate of the rupee is to curb excessive volatility.
India has now claimed that this methodology follows a "backward-looking statistical approach that relies on past exchange rate movement and historical data."
The IMF reclassification happened after an Article IV review of Indian policies. A report on Mint notes that this consultation report reviews a country's current and medium term economic policies and outlook.
The report noted that in the foreign exchange market, where the Indian rupee moved in a "very narrow range" against the US dollar, the movement suggested that the RBI's "intervention likely exceeded levels necessary to address disorderly market conditions".
Mint also reported that IMF has noted that "foreign exchange interventions have been used to avoid excessive volatility not warranted by fundamentals."
The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.
