IMF Advises India to Let Exchange Rate Absorb Fed Hike Impact

The International Monetary Fund (IMF) has advised India to allow its exchange rate to act as a shock absorber in response to the US Federal Reserve's decision to hike interest rates.

The IMF spokesperson stated that rate hikes by the Federal Reserve have historically created pressure for emerging markets through capital flows, financing conditions, and exchange rate movements. The Fed raised interest rates for the first time since July 2023 on September 17, indicating another possible hike as part of its effort to combat inflation.

The IMF spokesperson noted that India enters this period from a position of strength, with strong growth momentum, a credible inflation-targeting framework, ample external buffers, and healthy corporate and financial sector balance sheets. In this context, allowing the exchange rate to act as a shock absorber remains an effective approach, while keeping monetary policy focused on domestic price stability.