India ‘strongly disagrees’ with IMF assessment (representative)
India opposed the IMF after it said that the Reserve Bank of India’s intervention in the foreign exchange market was excessive, implying that the country was trying to influence the level of the rupee.
The currency moved within a very narrow range from December 2022 to October 2023, indicating that central bank intervention “most likely exceeded levels necessary to address disorderly market conditions,” the Washington-based bank said.
As a result, the International Monetary Fund reclassified India’s foreign exchange regime to a “stable arrangement” from a “float” regime, it said in its annual Article IV report issued on Monday.
The International Monetary Fund said India “strongly opposes” this assessment, calling it “unjustified.” The Reserve Bank of India said that the period is limited to the short term, and that the IMF’s assessment will fail over a period of two to five years.
“The Reserve Bank of India strongly believes that this view is incorrect because, in its view, it uses data selectively,” the IMF said in its report. An RBI spokesperson did not immediately respond to text messages seeking more information.
The rupee fell about 2% against the dollar between December 2022 and October 2023, after falling about 8% in the previous 12 months. The Reserve Bank of India is estimated to have intervened to the tune of $78 billion in those nine months, according to Bloomberg Economics. The country’s foreign exchange reserves of $604 billion are close to the record high of $642.5 billion reached in 2021.
Senior officials from the Reserve Bank of India have repeatedly said that the central bank is not targeting a level for the rupee, but intervention in the currency market dampens volatility. However, Indian officials remain sensitive to the issue, as the US Treasury has placed India on its watch list of potential currency manipulators intermittently since 2018. India has not been on the semi-annual watch list since November 2022.
During the IMF’s annual meetings in October, Reserve Bank of India Governor Shaktikanta Das criticized the Treasury’s practice of putting countries on a watch list. He said emerging markets like India need to build their buffer reserves to offset global risks.
The U.S. is unlikely to label India as a currency manipulator, as central bank intervention has not exceeded 2% of GDP over a 12-month period, said Michael Wan, a senior currency analyst at MUFG Bank Ltd..
“Looking to 2024, the RBI should relax some control on the rupee,” he said. “The dollar is expected to weaken in 2024, so the RBI should allow the rupee to strengthen in line with its peers.”
In its Article IV report, the IMF gave a somewhat optimistic view of the Indian economy, saying it has the potential to grow faster than the Fund’s forecast of 6.3% in the current and next fiscal years if the government implements major structural reforms.
The IMF said in a statement accompanying its report that India needs “ambitious” fiscal consolidation in the medium term in order to rein in its public debt. He added that the central bank’s current neutral monetary policy stance is “appropriate” and would help bring inflation back to the 4% target.