Rupee Movement Mirrors Global Emerging Market Trends, Says Finance Ministry
The Indian Finance Ministry has stated that the gradual depreciation of the rupee is consistent with broader trends observed in other emerging market economies. This assessment comes just a day after the International Monetary Fund (IMF) reclassified India's exchange rate regime, shifting it from 'stabilised' to a 'crawl-like arrangement'.
Reduced RBI Intervention and Forex Sales
Data reveals a significant shift in the Reserve Bank of India's strategy. After selling nearly $400 billion to support the rupee throughout 2024-25, the central bank's foreign currency sales saw a dramatic decline. In the first half of the current fiscal year 2025-26, the RBI's total sales amounted to just $44.3 billion.
This reduced intervention occurred despite global headwinds, including trade tensions and the imposition of 50 per cent tariffs by the US. Consequently, the rupee has weakened to record lows, recently breaching the 89-per-dollar mark and closing at 89.31 per dollar on Thursday, November 27, 2025.
IMF's Reclassification and the 'Crawl-Like' Peg
The IMF's annual staff report prompted the change in classification, suggesting that greater exchange rate flexibility would help India absorb external shocks. The fund recommended that foreign exchange intervention should be limited to addressing destabilising risk premia.
According to the IMF, a 'crawl-like arrangement' or 'crawling peg' is a system where a currency's exchange rate is adjusted periodically in small amounts. This change reflects the greater volatility the rupee has experienced over the past year.
In its October Monthly Economic Review, the Finance Ministry noted that the Indian rupee traded within a narrow range of 87.8-88.8 per US dollar, showing limited volatility. However, from the end of March to the end of October 2025, the INR depreciated by 3.5 per cent against the US dollar.
Encouraging Domestic Inflation Outlook
Amid the currency discussions, the Finance Ministry struck an optimistic note on the domestic inflation front, describing the outlook as encouraging. This positive sentiment is driven by several factors:
- Softening global commodity prices
- Benign energy markets
- Targeted domestic supply interventions
India's headline retail inflation fell to a record low of 0.25 per cent in October. Some economists now project it could average under 2 per cent for the entire 2025-26 fiscal year, which is significantly lower than the RBI's medium-term target of 4 per cent.
The ministry did caution that the balance of risks warrants continued vigilance. This favourable inflation data has led to market expectations that the RBI's Monetary Policy Committee (MPC) may lower the policy repo rate in its upcoming meeting. So far in 2025, the MPC has already reduced the repo rate by 100 basis points to 5.5 per cent.
