How consistent is IMF's exchange rate regime classification, data adequacy?

In its latest assessment, the International Monetary Fund (IMF) has revised the way it classifies India’s exchange rate arrangement, shifting it from “stabilised” to “crawl-like.” 

The IMF, in fact, reclassified, in 2009, just after the global financial crisis, the various exchange rate arrangements that were in vogue in 1998. The 2009 classification had two primary changes. First, it made a clear demarcation capturing the outcome of actual exchange rate policies on a de facto basis as opposed to the announced or de jure arrangement. Second, it specified the exact margin of fluctuation of the home currency around a reference rate for a particular exchange rate regime, and any movement beyond the margin would result in a change in classification. 

Thus, to quote the IMF: “A stabilised arrangement of currency entails a spot market exchange rate that remains within a margin of 2 per cent for six months or more... and is not floating.” In contrast, in a crawl-like arrangement, the exchange rate must remain within a narrow margin of 2 per cent relative to a statistically identified trend for six months or more... and the exchange rate arrangement cannot be considered as floating. 

Against this background, the IMF’s decision to relabel India’s exchange rate arrangement from stabilised to crawl-like reflects a meaningful shift in how the global community might interpret the behaviour of the Indian rupee and the Reserve Bank of India’s (RBI’s) approach to currency management. Interestingly, according to the IMF, the de-facto and de-jure exchange rate arrangement have remained different since December 2022. 

Let us look into India’s exchange rate on a historical basis and the classification that the IMF has followed since 1999. We also map the exchange rate depreciation and the RBI intervention in the foreign exchange market during such periods. This will give us an idea of whether the central bank has been leaning with the wind or against it. 

When seen historically, India’s exchange rate arrangement, both de-facto and de-jure, was floating from 1999 to 2022 (independent, managed, and floating). However, during these periods, the RBI purchased $364 billion to ensure a calibrated movement in rupee. Interestingly, the rupee’s average annual depreciation from  April 30, 2008 to December 5, 2022 was 4.2 per cent. Coming to the most recent period, from December 5, 2022 to November 25, 2025, when the IMF changed the exchange rate arrangement de-facto from floating to stabilised and to crawl-like arrangement, the rupee depreciation was remarkably at the same level of 4.2-4.3 per cent. The RBI also sold $40.4 billion during this period to support the rupee. This shows that the RBI has been consistent in allowing an unbiased movement in the value of the rupee in either direction during periods of strong capital inflows and even capital outflows. This clearly raises a question on the change in the labelling of India’s exchange rate regime as either stabilised or crawl-like from a floating regime. 

In fact, according to the IMF definition, for several years, specifically during December 6, 2022 to November 25, 2025, India was placed under the “stabilised arrangement” category (de-jure arrangement with de-facto as floating) — a regime where the exchange rate is kept within a narrow range through active intervention by the central bank. This suggested that the RBI regularly leaned against the market to keep the rupee close to a desired value. 

The new classification — “crawl-like arrangement” (de-facto arrangement with de-jure as floating) — implies that the rupee is now allowed to adjust gradually over time, moving in small increments rather than staying locked in a tight band. Such a regime still allows the central bank to intervene but acknowledges a more flexible, market-responsive approach. The data, however, suggests India’s currency depreciation has been remarkably similar over periods at about 4 per cent. Interestingly, India’s inflation targeting regime allows a movement between 2 and 6 per cent. It shows that the RBI has been doing a remarkably consistent job in allowing exchange rate movements (lower bound of 4 per cent) in line with domestic inflation rates and that too over a long time period! 

Furthermore, when we look at the countries that currently have floating/stabilised exchange rate arrangement and examine their exchange rate movement and foreign exchange reserves dynamics over the past two years, we find that certain countries, such as Brazil and Vietnam in 2024 and Indonesia in 2025, have witnessed depreciation in their currencies coupled with a steep decline in foreign exchange reserves (as highlighted in the table), taken as a proxy for their central bank’s intervention. However, these countries did not witness any change in their exchange rate arrangement by the IMF. Clearly, this shows that the IMF may not be following a consistent methodology for classifying exchange rate arrangement across countries. 

Thus, as the data suggests, India continues to follow a floating exchange rate mechanism since the rate of exchange rate depreciation is remarkably similar across floating, stabilised, and even the recent crawl-like agreement notified by the IMF. We can also term it as “managed float” (re-emphasised by RBI Deputy Governor Poonam Gupta after the monetary policy press conference). In principle, a ‘managed float’ could be conceived as a float with wide bands, with the (undisclosed) position of the bands providing the criterion for intervention. In addition, a managed float also implies that the central bank intervenes sporadically in the foreign exchange market purely to dampen the excessive fluctuation of exchange rates. Active intervention (sterilised and nonsterilised) results in changes in reserves, while indirect (monetary management) does not. 

Such inconsistency also occurs in IMF’s data adequacy assessment rating of India’s national accounts, which has been retained at C (with coverage as C, granularity as B, and frequency and timelines as A). However, if we look at Zimbabwe, it has the same ratings on coverage and granularity as India, but lower rating on frequency and timelines. And yet, it has a better overall rating on national accounts data as B. The IMF has, though, acknowledged India’s efforts in improving the real sector statistics, and has also mentioned that a better rating would be considered specially for national accounts once the new rebased series is released in February 2026. 

China is another country that has been assigned a C rating for national accounts data with different ratings on characteristics (with coverage as B, granularity as C, and frequency and timelines as A). And again, the United Arab Emirates (UAE) has the same ratings as China on coverage and granularity, but lower rating on frequency and timelines. Still, its overall rating on national income data is higher by one notch than China at B. Clearly, there are inconsistencies in the IMF’s assessments. 

To sum up, the IMF’s reclassification does not indicate a drastic change in India’s currency policy but rather a recognition of a gradual evolution. It symbolises a meaningful and managed shift. The rupee remains managed, but with greater flexibility that allows it to reflect economic fundamentals more accurately. For global investors and institutions, India has moved towards a more open and market-driven currency regime, reflecting its expanding role in the global economy. 

The recent movement of the rupee above the ₹90 a dollar level (since rebounded) is not a cause for worry. If we look at the 40-currency trade weighted real effective exchange rate, or REER (base 2015-16), it was above 100 till July (with June slightly below 100), and declined to 97.47 in October 2025. Compared to the dollar-rupee exchange rate, the nominal effective exchange rate (NEER) has declined less in the last couple of months. While rupee depreciated by 2.7 per cent between July-October 2025, the NEER declined by 2.2 per cent since then, implying the rupee has done better compared to other trade partner’s currencies. 

Historical evidence from the distribution of the dollar-rupee rate and the Dollar Index since January 2008 suggests that following depreciation, it takes approximately 11 months on average for the rupee to appreciate again. For instance, during January-18 to October-18, the rupee depreciated by 15.7 per cent. It took nine months for the rupee to appreciate again by 6.6 per cent. Therefore, the rupee is most likely to gain its momentum again in 2026! 

 

 

The author is Member, 16th Finance Commission, Member, Prime Minister’s Economic Advisory Council, and Group Chief Economic Advisor, State Bank of India. Views are personal. Research support: Disha Kheterpal