The International Monetary Fund (IMF) has expressed confidence in India’s ability to manage rising rupee volatility through increasing exchange rate flexibility. According to the IMF, India’s strong macroeconomic fundamentals and deep foreign exchange markets enable it to absorb such movements.

According to the institution, a two-way flexible exchange rate allows the rupee to appreciate or fall in response to market demand and supply. It went on to say that India’s balance sheet mismatches are minimal, exchange rate movements have little influence on inflation, and the forex market is deep—all of which support a more flexible currency system.

In response to enquiries about rupee stability, an IMF spokesperson stated that since Reserve Bank of India Governor Sanjay Malhotra assumed office, the exchange rate has been more flexible, with less market intervention. The IMF highlighted that its review of India’s exchange rate regime is conducted on a regular basis and will be updated in the next Article IV consultation, which is planned to take place next month.

In its Regional Economic Outlook, the IMF emphasised the importance of exchange rates as shock absorbers, assisting countries in dealing with trade and tariff disruptions.