2 hrs ago
IMF Says India Should Let Exchange Rate Absorb Fed Hike
The U.S. Federal Reserve raised interest rates to help lower inflation.
It also suggested rates might rise again.
When U.S. rates go up, money and borrowing conditions can change in other countries too.
The IMF said this could affect India through investment flows, financing, and exchange rates.
How much India is affected depends on how large and long-lasting the rate increases are, and on conditions at home.
The IMF said India has strong growth, financial safeguards, and healthy businesses and banks.
It recommended that India let its currency adjust to outside pressures.
It also said India should keep its own monetary policy focused on keeping prices stable.
The U.S. Federal Reserve raised interest rates on September 17, its first increase since July 2023.
The Fed indicated another increase could follow as it works to bring down inflation.
The IMF said tighter U.S. monetary policy can affect emerging markets through capital flows, financing conditions, and exchange rates.
The impact on India will depend on the tightening cycle’s magnitude, pace, and persistence, as well as domestic conditions.
The IMF said India should let its exchange rate respond to external pressures while keeping monetary policy focused on domestic price stability.
- Who
- The International Monetary Fund and the U.S. Federal Reserve; the IMF spokesperson discussed the potential impact on India.
- What
- The IMF recommended allowing India's exchange rate to respond to external pressures while monetary policy focuses on domestic price stability.
- Where
- The potential effects discussed were on India and emerging markets.
- When
- The Federal Reserve raised rates on September 17; the IMF spokesperson's comments were reported on Friday.
- Why
- The Fed's rate increases can tighten global financial conditions and affect emerging markets through capital flows, financing conditions, and exchange rates.
Key facts
- Federal Reserve rate increase
- September 17; first increase since July 2023
- Possible next step
- The Fed indicated another increase could follow as it works to bring down inflation.
- Potential emerging-market channels
- Capital flows, financing conditions, and exchange rate movements
- Factors shaping India's exposure
- The magnitude, pace, and persistence of Fed tightening, along with domestic economic conditions
- India's cited strengths
- Strong growth momentum, a credible inflation-targeting framework, ample external buffers, and healthy corporate and financial-sector balance sheets
- IMF's policy advice
- Let the exchange rate act as a shock absorber while keeping monetary policy focused on domestic price stability.
Quotes
IMF spokesperson
Spokesperson for the International Monetary Fund
“However, India enters this period from a position of strength. Strong growth momentum, a credible inflation-targeting framework, ample external buffers, and healthy corporate and financial sector balance sheets have strengthened the economy's resilience.”
businesstoday.in
CNBC TV 18
“In this context, allowing the exchange rate to act as a shock absorber, while keeping monetary policy focused on domestic price stability, remains an effective approach.”
businesstoday.in
CNBC TV 18
Sources
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