Business & Economy

India, IMF clash over foreign exchange

New Delhi, Dec 19 (EFE).- The International Monetary Fund (IMF) warned on Tuesday of a possible “excessive” intervention in the foreign exchange market by New Delhi to favor the Indian rupee, a criticism that the Reserve Bank of India (RBI, or central bank) considered unjustified and selective.

According to an IMF executive board report, between December 2022 and September 2023 “the Rupee-U.S. Dollar exchange rate moved within a very narrow range, suggesting that FXI likely exceeded levels necessary to address disorderly market conditions.”

Foreign exchange intervention is a tool used by central banks, buying or selling foreign currency, to influence currency imbalance, volatility or depreciation.

The stability observed in India’s dollar shift, different from that in recent years, led the IMF to reclassify India’s exchange rate mechanism from “floating” to “stabilized arrangement,” the IMF said.

Unlike the “floating” mechanism, which indicates that the value of the exchange rate is determined by the market, a “stabilized arrangement” denotes intervention by monetary authorities.

The RBI, in response, expressed its disagreement with the IMF’s assessment, claiming it was “unjustified.”

India’s central bank “strongly believes that such a view is incorrect as, in their view, it uses data selectively,” according to the report.

As per the Indian monetary authority, the IMF’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 (IMF’s) assessment would fail.”

During the IMF-reviewed period, the Indian Rupee (INR) depreciated by less than four percent against the dollar, while in the previous two years depreciation was around 15 percent, according to data from the financial organization.

India is on track to be one of the world’s fastest-growing major economies this year, according to the IMF. EFE

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