Rupee should be India’s first line of defence against energy shocks: IMF
IMF Communications Director Julie Kozack said foreign exchange intervention may be justified during disorderly market conditions, but flexibility remains preferable for India
The International Monetary Fund (IMF) has stated that exchange rate flexibility should be the primary defense against energy shocks in India, according to its Communications Director Julie Kozack. The IMF has noted that allowing the exchange rate to move freely can help the Indian economy adjust to these shocks effectively.
Kozack pointed out that the IMF would advise monetary policy tightening if the declining value of the rupee starts to contribute to inflation. This stance comes in response to the Reserve Bank of India's (RBI) significant market interventions to support the rupee's value. Since June this year, the RBI has reportedly utilized around USD 90 billion through spot market sales and currency swaps to absorb excess liquidity.
Kozack emphasized that if the rupee depreciates to an extent that triggers broad-based inflation, the IMF might recommend tightening monetary policy to maintain price stability. Nonetheless, the IMF maintains that exchange rate flexibility remains the preferable response for India, as it aligns with the organization's integrated policy framework.
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