IMF Working Papers

Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India

ByJesper Lindé, Patrick Schneider, Nujin Suphaphiphat, Hou Wang

November 15, 2024

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Format: Chicago

Jesper Lindé, Patrick Schneider, Nujin Suphaphiphat, and Hou Wang. "Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India", IMF Working Papers 2024, 236 (2024), accessed 12/5/2025, https://doi.org/10.5089/9798400292903.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper analyzes the effectiveness of foreign exchange intervention (FXI) in mitigating economic and financial shocks in India by applying the Integrated Policy Framework (IPF). It highlights how FXI can be a complementary tool in mitigating the tradeoff between output and inflation, specifically under large economic shocks amid temporarily shallow FX markets. The paper indicates that while FXI can soften adverse impacts on domestic demand and output during severe risk-off shocks, its benefits under normal conditions with liquid FX markets are limited.

Subject: Central bank policy rate, Currency markets, Financial markets, Financial services, Foreign exchange, Inflation, Integrated Policy Framework, Prices

Keywords: Central bank policy rate, Currency markets, EM FX intervention proxy, foreign exchange intervention, FX Market development, Global, Inflation, Integrated policy framework, OTC FX turnover, rate Policy, RBI FX intervention, risk-off shocks

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