FinMin says rupee weakness in line with EM trends, inflation outlook encouraging, Pg17

Key Highlights:

• The Finance Ministry stated the Indian Rupee (INR) has gradually weakened, aligning with other emerging market economies.
• In October 2025, the INR traded between 87.8-88.8 per US dollar, remaining stable due to portfolio flows and RBI management.
• From March to October 2025, the INR depreciated by 3.5% against the US dollar.
• The IMF reclassified India's exchange rate regime to 'crawl-like arrangement' from 'stabilized'.
• Retail inflation in India fell to 0.25% in October, with expectations to average under 2% for 2025-26.

Detailed Insights:

• The IMF suggests greater exchange rate flexibility for India to absorb external shocks, limiting intervention to address destabilizing risk premia.
• The change to a 'crawl-like arrangement' follows increased INR volatility, breaching 89 per dollar this week and closing at 89.31 per dollar on Thursday.
• The RBI's intervention in foreign exchange markets decreased in 2025-26, with sales of $44.3 billion compared to nearly $400 billion in 2024-25.
• The Finance Ministry views the domestic inflation outlook as encouraging due to softening global commodity prices and domestic supply interventions.
• The Monetary Policy Committee (MPC) may lower the policy repo rate next week, potentially the first time since June, due to low retail inflation.

Key Concepts Involved:

• Exchange Rate Regime: A system that governs how a country manages its currency value against other currencies.
• Crawl-like Arrangement: An exchange rate system where a currency's value is adjusted periodically in small increments.
• Monetary Policy Committee (MPC): A committee that decides on a country's monetary policy, including key interest rates, to manage inflation.