In its latest policy assessment released Wednesday, the International Monetary Fund shifted India’s “de facto” exchange rate classification to a “crawl-like arrangement,” stepping away from its previous “stabilized” label from two years ago.
The shift comes on the heels of an IMF review conducted earlier this year and is expected to shape how international investors’ view India’s currency management approach. The new classification may signal a greater policy tolerance for gradual exchange-rate adjustments, potentially affecting market expectations around rupee stability and capital flows.
“While the exchange rate has exhibited increasing two-way movement this year, there remains room for additional exchange rate flexibility,” the International Monetary Fund told.
So far this year, the Indian rupee has slipped roughly 4%, and market volatility has increased since Sanjay Malhotra took over as Reserve Bank of India governor late last year.
The rupee fell to a record low of 89.49 against the U.S. dollar on November 21. Analysts say the drop was partly driven by higher U.S. trade tariffs, which have hurt exports and slowed foreign investment into India.
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According to the International Monetary Fund, a crawl-like arrangement is identified when the exchange rate stays within a “narrow margin of 2% relative to a statistically identified trend for six months or more (with the exception of a specified number of outliers), and the exchange rate arrangement cannot be considered as floating.”
The IMF previously shifted India’s exchange rate designation from “floating” to “stabilized” for the period spanning December 2022 to November 2024. In its latest assessment, the Fund said that allowing the rupee to move more freely could help the country better manage external shocks, lower the reliance on building expensive foreign exchange reserves, and support the development of deeper financial markets.
The Reserve Bank of India’s broader acceptance of currency fluctuations has also pushed domestic firms to step up their foreign exchange risk management, a trend analysts say could strengthen the economy’s ability to withstand global disruptions. RBI officials, including Deputy Governor Malhotra, have repeatedly emphasized that the central bank does not defend any specific rupee level, noting that interventions are aimed solely at preventing “excessive volatility,” as per Reuters.
The IMF projects India’s economy to expand by 6.6% in 2025-26, followed by 6.2% growth in the subsequent financial year. The Fund noted that recent tax cuts on hundreds of consumer goods are likely to help offset the strain from elevated tariffs on the economy.
The U.S. has slapped tariffs of up to 50% on Indian goods, affecting exports and hitting industries ranging from textiles to chemicals. The IMF said that new trade agreements and quicker domestic structural reforms could support growth, though rising geopolitical tensions remain a potential challenge. The Fund also cautioned that erratic weather patterns could weigh on crop production, rural consumption, and potentially revive inflationary pressures.
IMF directors also see scope for India’s central bank to ease interest rates further, pointing to persistently low inflation. They recommended that the federal government’s fiscal consolidation plan for the year starting April 1, 2026, be flexible and take into account the ongoing effects of tariffs on the economy.
