The International Monetary Fund has urged rupee flexibility as the preferred way for India to adjust to energy shocks, saying monetary tightening could be considered if currency depreciation leads to broad-based inflation.
Rupee flexibility as a first line of defence
IMF Communications Director Julie Kozack told reporters on October 29, 2026, that the rupee should be the “first line of defence” against such shocks. Allowing the exchange rate to move freely and reflect their impact would help the Indian economy adjust, she said.
Kozack said foreign exchange intervention can be appropriate when market conditions become disorderly, consistent with the IMF’s integrated policy framework. For India, however, she said exchange rate flexibility remains the preferable response.
When tighter monetary policy could be considered
Kozack said tightening could be considered to preserve price stability if significant rupee depreciation feeds into broad-based increases in inflation. That was a conditional recommendation, not an announcement of a policy change by the Reserve Bank of India.
The IMF’s 2025 India consultation also recommended greater exchange rate flexibility, with intervention aimed at addressing disorderly market conditions. That assessment predates Kozack’s remarks on energy shocks.
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