RBI's justified opposition to IMF classification of India's exchange rate

The RBI is the custodian of the country's foreign exchange reserves and manages exchange control. The RBI Act stipulates that the Central Government orders the rate at which the RBI shall buy or sell forex to banks.

The IMF's Article IV review considers a country's current and medium-term outlook and policies. The IMF's report said that the movement suggested "intervention likely exceeded levels necessary to address disorderly market conditions".

In December 2023, the International Monetary Fund (IMF) reclassified India's exchange rate regime from "floating" to "stabilized arrangement" for the period between December 2022 and October 2023.

The IMF's reclassification was based on the Reserve Bank of India's (RBI) likely interventions. The IMF disagreed with India's perspective, emphasizing the need for a flexible exchange rate. The IMF also called the RBI's currency intervention excessive, while the RBI opposed the IMF's reclassification, calling it "unjustified" mentioning that it has adhered to SDDS(Special Data Dissemination Standards) in a transparent manner while intervening in the forex market for orderly movement of INR vs USD.

The above graph of Trade deficit trend juxtaposed to Indian Rupee vs US Dollar trend over the last 3 years clearly shows that the inverted correlation between these two continue without extended breaks. This belies the IMF argument of Rbi's intervention being excessive.In the year 2022 there was a huge pull out from Indian Stock markets by foreign investors and in 2023 there was a reversal in investing by foreign investors in Indian markets.Despite this sudden higher inflow of US Dollars into the economy, RBI has not allowed volatality to set in the forex markets.

Forex experts will know that Current account deficit to GDP has also shrunk to 1% of GDP in Q2 of FY 24 from 3.8% in the same Q2 of FY23.

The above graph showing the movement of currencies INR vs USD and IDR (Indonesian Rupiah)vs USD over the last one year, buttresses the RBI point that its intervention is limited only to the orderly movement of INR vis a vis US Dollar.

Comments

Hanuman and Ganesha!

The two major loved deities of the Hindu pantheon are Hanuman and Ganesha. Let us dwell into the concepts and significance of these two dieties. Ganesha, the son of Parvati and Shiv, is worshipped first before starting any new job or work. Even if you want to start writing or reading , you invoke the blessings of Lord Ganesha who goes under various names- Ganapathi, Vigneshwar, Vinayak, and Pillayar in Tamilnadu. Ganesha Gayathri, Pancharatnam are some of the important Ganesha mantras and hymns. Adi Ganesha idol is in a Temple near Tiruvarur in Tamilnadu with a human face.The mythological story says that Shiv slew His head and then fixed the head of the animal that He saw first after this beheading of His son. Ganesha after that with the elephant head is worshipped as the wisdom god by Hindus. Why only Hindus. He is worshipped in Indonesia where He finds Himself in their currency notes. He is considered the destroyer of evil in Japan. In Mexico, Ganesha idols were said to h...

Shrinking middle class in India?-Data show Growing Middle class!

Key Findings from the SBI Eco wrap Report(25th Oct 2024) Income Inequality is Decreasing : The report uses the Gini coefficient to demonstrate a decline in income inequality in India. The shift is most noticeable in lower income brackets, with a substantial portion moving into higher income groups. This aligns with a rightward shift in the income distribution curve. ITR Filings are Increasing : The number of ITR filings has significantly increased, indicating a growing tax base. This growth is particularly evident in previously untapped states (Uttar Pradesh, Bihar, etc.), suggesting broader economic participation.Below is the chart which shows No. of tax payers in Different income Group in AY2014 and AY2024 which clearly shows that the bulk have moved up from Rs.1.5lac to Rs5 lac to Rs.2.5 lac to Rs.10 lac(highlighted in yellow colour) Growth in 'Crorepati' Taxpayers : The number of taxpayers earning over ₹1 crore has increased significantly, highlighting the expansi...

State of the Indian Economy: Navigating Global Uncertainties

The global economic landscape is rapidly evolving, with trade policy uncertainty emerging as the key driver of the near-term outlook. Recent US tariff announcements have stoked fears of a global trade war, with countries still working out their appropriate responses in this uncertain environment. Despite these external headwinds, the Indian economy has exhibited marked resilience. Although the weakening global economic outlook could impact overall growth through weaker external demand, India's domestic growth engines - consumption and investment - are relatively less susceptible to external pressures. Prospects for the farm sector have been boosted by the forecast of an above normal southwest monsoon for 2025, which could augment farm incomes and keep food prices under check. Headline inflation moderated to a 67-month low of 3.3% in March, mainly due to moderation in food prices. Global Economic Outlook: Trade Tensions and Market Volatility The global economic landscape is facing ...

We are what we are !!

Search This Blog