As global economic pressures weigh on Asian currencies, the International Monetary Fund (IMF) has urged policymakers to allow exchange rates to adjust to external shocks. The remarks come as the Reserve Bank of India (RBI) strengthens its efforts to support the rupee amid rising oil prices and continued foreign investment outflows.
“Countries which allow exchange rates to move have benefited more,” said Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, at a press conference in Mumbai on Wednesday. Responding to a question about Asian currencies, he said exchange rates should absorb some of the pressure from global shocks and serve as the “first line of defense.” He did not name the RBI.
Central banks across Asia are facing currency weakness as global uncertainty fuels capital outflows and increases demand for the US dollar. Countries such as Indonesia and Japan have used a combination of interest-rate increases and market interventions to manage depreciation. These measures also raise concerns about the impact on foreign-exchange reserves and domestic economic activity.
In India, the RBI has stepped up its efforts to support the rupee, marking its strongest defence of the currency since the 2013 taper tantrum. The rupee has been among Asia’s weakest-performing currencies this year, facing pressure from high oil prices and sustained foreign outflows from Indian equities.
This month, the RBI introduced a special window to meet the dollar requirements of state-run oil companies. It also introduced a measure requiring banks to set aside cash against certain foreign-exchange transactions. These steps followed the central bank’s first interest-rate hike in nearly 4 years, as it seeks to manage inflation risks linked to a weaker rupee and elevated crude oil prices.
The IMF also distinguished between direct currency-market intervention and measures aimed at attracting foreign capital. Ranil Salgado, the IMF’s senior resident representative
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