IMF Says Rupee Should Be First Line of Defence Against Energy Shocks

The International Monetary Fund (IMF) on Thursday said exchange rate flexibility should be India's preferred response to energy shocks, arguing that allowing the rupee to adjust to external pressures would help the economy absorb their impact.

Speaking at a press briefing, IMF Communications Director Julie Kozack said the rupee should act as the first line of defence against such shocks, rather than relying excessively on intervention to support the domestic currency.

“Our view is that the rupee should be the first line of defence in the face of these shocks,” Kozack said. in response to a question. She added that allowing the exchange rate to move freely to reflect the impact of energy shocks was important for helping the Indian economy adjust.

The IMF's comments come amid reports that the Reserve Bank of India (RBI) has deployed about USD 90 billion since June 2026 to support the rupee. The reported interventions include sales in the spot foreign exchange market and currency swaps aimed at absorbing surplus liquidity. Kozack said monetary policy tightening could be considered if a significant depreciation of the rupee begins translating into broad-based inflationary pressures.

“If significant rupee depreciation leads to broad-based increases in inflation, then our advice would be that monetary policy tightening could be considered to preserve price stability,” she said.

The comments underline the potential trade-off facing policymakers as they seek to manage currency volatility while containing inflation. A weaker rupee can raise the domestic cost of imported commodities, including crude oil, potentially adding to inflationary pressures in an economy dependent on energy imports.

However, the IMF acknowledged that foreign exchange intervention could be appropriate when market conditions become disorderly. Such action, Kozack said, would be consistent with the fund's Integrated Policy Framework.