IMF reclassifies India's exchange rate regime as 'crawl-like' amid weakness in rupee

IMF

The International Monetary Fund (IMF) has reclassified India's 'de facto' exchange rate regime as a 'crawl-like arrangement', marking a change from its earlier 'stabilized' classification.

"While the exchange rate has exhibited increasing two-way movement this year, there remains room for additional exchange rate flexibility," the International Monetary Fund said.

The move could influence how the global investors view India's forex framework and its resilience for any volatility.

A crawling peg is when the exchange rate remains within "narrow margin of 2% relative to a statistically identified trend for six months or more (with the exception of a specified number of outliers), and the exchange rate arrangement cannot be considered as floating".

The IMF had first moved to the stabilized classification from 'floating' in December 2022 and continued with the tag till November 2024.

"While the exchange rate has exhibited increasing two-way movement this year, there remains room for additional exchange rate flexibility," the International Monetary Fund said.

The rupee depreciated to a record low of 89.49 against the US dollar on November 21, as the currency faced headwinds from steep US tariffs and portfolio outflows. The RBI intervened in the market on Monday selling dollars to arrest the fall.

The rupee has fallen around 4% so far this year, the most among Asian peers. In an interview, RBI Governor Sanjay Malhotra said that the recent fall in rupee was a natural outcome of India’s inflation gap with advanced economies and that the RBI's job was to arrest excessive volatility.