IMF Reclassifies India’s Forex Setup As "Crawl-Like Arrangement" - Know Why

In its latest report on Indian economy, the International Monetary Fund labelled the country's de facto exchange rate setup as a "crawl-like arrangement".

“While the exchange rate has exhibited increasing two-way movement this year, there remains room for additional exchange rate flexibility,” the IMF said.

The rupee has dropped nearly 4% over the year so far with the volatility on rise after Sanjay Malhotra took over as the Reserve Bank of India Governor.

The currency also hit a lifetime-low of 89.49 against the USD on November 21, as a result of US trade tariffs, which have impacted the country's trade and inwards investment flows.

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What Does “Crawl-Like” Term Used By IMF Mean? 

It's shorthand for a regime where the currency inches along a trend line, think small, steady tweaks to match inflation gaps with trade buddies, staying within a tight 2% band for six months straight, outliers aside. Not quite a free float, but a far cry from the old "stabilized" vibe where the RBI played goalie to keep things in a straitjacket.

On the India's growth projections, the IMF despite external headwinds expects a real GDP growth of 6.6% in FY2025/26 before "moderating to 6.2 percent in FY2026/27".  

"The reform of the goods and services tax (GST) and the resulting reduction in the effective rate are expected to help cushion the adverse impact of tariffs," IMF said.

Meanwhile, the headline inflation is projected to remain well contained, reflecting the one-off effect of the GST reform and continued benign food prices, it said.

On the upside, the conclusion of new trade agreements and faster implementation of structural reform domestically could boost exports, private investment, and employment.