IMF reclassifies India’s FX regime as ‘floating’

Flags TCS norms for forex outflows under LRS, says Fund's nod not secured

- RUCHIKA CHITRAVANSHI

The International Monetary Fund (IMF) has reassigned the ‘floating’ label for the Rupee’s exchange rate arrangement, citing declining forex interventions by the central bank in recent times.

In 2023, the Fund had dropped the floating tag and termed India’s de facto exchange rate policy a ‘stabilised arrangement’, indicating the central bank was intervening too much and too often in the foreign exchange market.

“The exchange rate of the rupee is determined in the inter-bank market, where the Reserve Bank of India (RBI) intervenes frequently. The RBI’s stated intervention objective is to curb excessive volatility. India’s de jure exchange rate arrangement is floating, and its de facto exchange rate arrangement is classified as a crawl-like arrangement,” the IMF staff 2025 report on India presented to its board noted.

According to the IMF, a crawl-like arrangement refers to small, gradual adjustments to a currency to reflect inflation gaps between a country and its trading partners. As opposed to this, a ‘stabilised arrangement’ refers to a system where a currency’s spot market rate is kept within a narrow band for an extended period, typically six months or more, through central bank intervention.

The IMF staff report said the period considered for a potential reclassification of the de facto arrangement is any six-month span beginning from the onset of a new trend, as observed since the arrangement was last classified.