IMF Changes India's Forex Classification to 'Crawl-Like Arrangement'

The International Monetary Fund (IMF) has shifted India’s de facto exchange rate classification to a “crawl-like arrangement”, suggesting that the Reserve Bank of India (RBI) is allowing a measured weakening of the rupee while intervening regularly to limit sharp market volatility.  

The development reflects a change from the Fund’s earlier “stabilised arrangement” label assigned in 2023, when India was moved from a “floating” category due to tighter-than-expected currency management. Both classifications fall under the broader category of “soft pegs” rather than genuinely floating systems. 

IMF Notes Active RBI Intervention and Gradual Rupee Movement 

In its 2025 staff report presented to the Board, the IMF stated that the rupee is primarily determined in the interbank market, with the RBI intervening frequently to control excessive volatility.  

While India’s official framework remains a floating exchange rate, the Fund’s analysis concluded that actual market behaviour resembles a controlled, gradual adjustment pattern. The IMF said it evaluates such reclassifications over any six-month period following the emergence of a new trend in exchange rate management.  

The report acknowledged that India’s trade and foreign exchange policies have recently aligned more closely with the IMF’s recommendations but noted that foreign exchange interventions remain “significant”, even during periods without clear market stress, potentially limiting the currency’s ability to absorb external shocks.  

Concerns Over LRS Outflow Taxes and Other Restrictions 

The IMF also raised concerns about several restrictions on international current transactions, especially those introduced through India’s Liberalised Remittance Scheme (LRS). It said that the higher tax collected at source (TCS) on outward remittances raised in 2023 from 5% to 20% for many categories constitutes an exchange restriction requiring approval from the IMF’s Executive Board under commitments India adopted in 1994.  

The Fund noted that restrictions now apply to remittances for travel, medical services and education above certain thresholds.  

Read More: India to Hit $5 Trillion Economy in FY29 as IMF Revises Forecast! 

Conclusion 

By reclassifying India’s de facto exchange rate regime and flagging multiple restrictions and reform gaps, the IMF’s 2025 report signals both progress and persistent vulnerabilities. While the RBI’s interventions have supported stability, the Fund argues that greater exchange rate flexibility and deeper structural reform are essential for sustaining growth and strengthening India’s economic resilience. 

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