Stories
IMF Urges India: Let Exchange Rate Absorb Fed Hike Shocks
C
CNBC TV18•04-10-2026, 18:52
IMF Urges India: Let Exchange Rate Absorb Fed Hike Shocks
- •The IMF suggests India allow its exchange rate to act as a shock absorber in response to the US Federal Reserve's interest rate hikes.
- •Fed rate hikes historically create pressure for emerging markets through capital flows, financing conditions, and exchange rate movements.
- •The Federal Reserve raised interest rates in September for the first time since July 2023 to combat inflation, with another hike potentially following.
- •India enters this period from a position of strength, supported by strong growth, a credible inflation-targeting framework, and ample external buffers.
- •Allowing the exchange rate to absorb shocks while focusing monetary policy on domestic price stability is an effective approach for India.
Key Questions Answered
The IMF stated that US Federal Reserve rate hikes contribute to tighter global financial conditions and create pressure for emerging markets through capital flows, financing conditions, and exchange rate movements.
The IMF noted that India enters this period from a position of strength, supported by strong growth momentum, a credible inflation-targeting framework, ample external buffers, and healthy corporate and financial sector balance sheets.
The IMF suggested that allowing the exchange rate to act as a shock absorber while keeping monetary policy focused on domestic price stability remains an effective approach for India.
