The International Monetary Fund (IMF) has emphasised the importance of flexible exchange rates, warning that foreign-exchange intervention provides limited benefits beyond the immediate term.
As per a report by Bloomberg, Krishna Srinivasan, Director of the IMF's Asia and Pacific Department, said countries allowing their currencies to adjust to global pressures had generally benefited more.
He argued that exchange rates should serve as the first line of defence against external economic shocks, without specifically referring to the Reserve Bank of India (RBI).
RBI Intensifies Rupee Defence Amid Global Market Pressures
Asian central banks are facing mounting currency pressures as global uncertainty triggers capital outflows and strengthens demand for US dollars.
Countries including Indonesia and Japan have responded through interest rate adjustments and foreign-exchange market interventions.
In India, the RBI has stepped up efforts to support the rupee, which has ranked among Asia's weakest currencies this year.
Elevated crude oil prices and sustained foreign investor withdrawals from Indian equities have contributed to its depreciation.
The central bank recently introduced a special facility to meet dollar requirements of state-owned oil companies.
It also implemented a measure requiring banks to maintain cash balances against specified foreign-exchange transactions.
These steps followed the RBI's first interest rate increase in nearly four years, reflecting concerns about imported inflation arising from a weaker currency and expensive crude oil.
IMF Welcomes Measures To Attract Foreign Capital
The IMF distinguished direct currency intervention from policies aimed at strengthening foreign capital inflows.
Ranil Salgado, the IMF's Senior Resident Representative for India, Bhutan and Maldives, welcomed the RBI's recent measures to attract overseas funds.
The central bank has relaxed foreign borrowing regulations and introduced incentives encouraging foreign-currency deposits from overseas Indians.
These initiatives have reportedly attracted billions of dollars, helping improve dollar availability without relying entirely on foreign-exchange reserves.
Salgado also highlighted the RBI's stated approach of containing excessive exchange-rate volatility rather than protecting any predetermined rupee level.
The IMF's observations underscore the distinction between allowing currencies to respond to global developments and maintaining financial stability through targeted policy measures.
