The International Monetary Fund is expected to announce Wednesday that it will reclassify India’s exchange rate regime to include references to a crawling peg system, marking a shift in how the global lender views the central bank’s currency management two years after upsetting Indian officials with criticism of excessive intervention.
The new designation, to be published with India’s 2025 Article IV staff report on November 27, comes as the rupee has become more volatile under Reserve Bank of India Governor Sanjay Malhotra, who took charge in December 2024. A crawling peg involves small and gradual currency adjustments to reflect inflation differences between a country and its trading partners.
Shift From Tight Control
The potential reclassification follows a period of heightened rupee volatility. The currency plunged to a record low of 89.41 per dollar on Friday before rebounding Monday as the RBI returned to support it. The rupee has fallen about 4% against the dollar this year, the most among Asian peers, as India faces 50% U.S. tariffs on its exports.
“Under the current Governor Sanjay Malhotra, who took charge in December last year, the central bank has allowed more ‘two-way flexibility in the exchange rate,'” said Thomas Helbling, deputy director of the Asia Pacific department at the IMF. Even with greater flexibility, the central bank has intervened with large dollar sales on several occasions this year, pushing the rupee sharply higher.
The IMF reclassified India’s foreign-exchange regime to a “stabilized arrangement” from a “floating” system in 2023, citing excess intervention. Indian authorities pushed back strongly against that assessment. RBI Deputy Governor Poonam Gupta recently argued that “excessive currency volatility was not necessarily desirable for countries like India”.
Reserves and Trade Pressures
India holds one of the world’s largest foreign-exchange reserves at $692.6 billion as of November 14, though the reserves have declined in recent weeks due to RBI interventions. Malhotra said last week that the rupee typically depreciates 3% to 3.5% annually, and the RBI’s priority is managing sharp swings rather than defending any specific level.
The timing of the IMF’s announcement comes as India navigates trade tensions with the United States. While the Trump administration imposed steep tariffs on Indian exports in August, it recently removed duties on over 200 agricultural products including tea, coffee and spices, providing some relief to Indian exporters.
“We classify all member countries’ de facto exchange rate regimes based on a uniform methodology,” an IMF spokesperson said. A spokesperson for the RBI did not respond to requests for comment.