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

_IMF Working Papers, November 15, 2024_

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## Bibliographic details
- Authors: Jesper Lindé, Patrick Schneider, Nujin Suphaphiphat, Hou Wang
- Published: November 15, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400292903.001

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

### Policy implications and recommendations
- Consider FXI as a complementary instrument within the IPF toolkit when large external shocks coincide with temporarily shallow FX market liquidity.
- Under normal market conditions with liquid FX markets, prioritize other policy tools given the limited benefits of FXI.
- Use FXI selectively to reduce the tradeoff between stabilizing inflation and supporting output during periods of severe risk-off shocks.

### Scope, methodology, and subject focus
- Analytical framework: Integrated Policy Framework (IPF).
- Geographic focus: India.
- Subject areas: 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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_Source: https://www.imf.org/en/publications/wp/issues/2024/11/15/foreign-exchange-intervention-under-the-integrated-policy-framework-the-case-of-india-557184_