'Rupee Should Be India's First Line Of Defence Against Middle East Energy Shock': IMF Backs Exchange Rate Flexibility Over RBI Intervention | Video
Washington: The International Monetary Fund has said the rupee should be India’s “first line of defense” against the energy shock from the war in the Middle East, signalling a preference for exchange rate flexibility over heavy central bank intervention, even as it kept its 7 per cent growth forecast for the Indian economy. At today’s briefing, I highlighted upcoming management travel and the…
The International Monetary Fund (IMF) has advised India to view the rupee as its primary defense against the energy crisis caused by the Middle East conflict. This recommendation favors exchange rate flexibility over heavy government intervention, even though the IMF maintains a growth forecast of 7 percent for India's economy. IMF spokesperson Julie Kozack emphasized that allowing the exchange rate to fluctuate in response to energy shocks is essential for the Indian economy to adjust.
However, Kozack also noted that if a weaker rupee leads to widespread inflation, monetary policy tightening might be necessary to maintain price stability. The IMF has not ruled out intervention altogether, but in India's case, it believes exchange rate flexibility remains the preferable policy response. Kozack described India as "really an engine of growth in the world economy," citing strong domestic demand and robust services activity.
The main downside risk for India, according to Kozack, is adverse weather, which could negatively impact crop yields and lead to higher food prices, potentially affecting household purchasing power.
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