IMF advises India to let currency cushion effects of US rate hikes

An IMF representative noted that the Federal Reserve’s recent rate increase, the first since July 2023, typically generates pressure on emerging markets through shifts in capital flows, financing conditions and exchange-rate movements. The extent of the effect on India will depend on the pace, magnitude and persistence of further Fed tightening, as well as India’s own economic environment. The spokesperson highlighted India’s advantageous starting point, citing strong growth momentum, an effective inflation-targeting framework, ample external reserves and resilient corporate and financial sector balance sheets.

In this context, the IMF suggests that the rupee should be allowed to function as a shock absorber, while monetary policy remains centered on domestic price stability. This approach is presented as an effective way to manage external shocks without compromising internal inflation goals.