The International Monetary Fund (IMF) has reclassified India’s exchange rate regime from a “floating” status to a “stabilised arrangement” for the period between December 2022 to October 2023.

This revision was made after a comprehensive assessment of the country’s policies during the IMF’s annual Article IV review.

The IMF reclassification was led by the Reserve Bank of India’s (RBI) apparent forex interventions where the rupee traded in a “very narrow range against the US dollar. The movement suggested “intervention likely exceeded levels necessary to address disorderly market conditions,” IMF said in the report.

Article IV reviews a country's current and medium-term economic policies and outlook.

In its consultation report, the IMF said India's exchange rate stability "reflects improvements in external position" and noted that "foreign exchange interventions have been used to avoid excessive volatility not warranted by fundamentals."

Between December 2022 and October 2023, the rupee traded between 80.88 and 83.42 against the US dollar. However, since October, this range has narrowed to 82.90-83.42, with anticipations of volatility reaching their lowest in more than a decade. 

The IMF’s view differed from that held by the Indian authorities which stated that “exchange rate stability reflects improvements in India’s external position” and that “foreign exchange interventions have been used to avoid excessive volatility not warranted by fundamentals.”

The RBI disagreed with the IMF’s view and considered it to be “incorrect” and “unjustified”. It regarded IMF’s evaluation as being selective and would fail over a two to five-year horizon.

According to Bloomberg Economics estimates, the RBI intervened with approximately $78 billion in the foreign exchange market during the nine months from December 2022 to October 2023. The rupee during this period depreciated about 2% against the dollar.