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Friday, January 24, 2025 | 06:11 PM ISTEN Hindi

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Why did RBI replace flexible exchange rate with de facto peg against dollar

The RBI must come out with an official explanation, but until it does, we can only guess. But there are a few reasonable hypotheses

RBI, Exchange rates, Rupee, finance sector, ECONOMY, INDIAN ECONOMY
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Abhishek AnandJosh FelmanArvind Subramanian

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In a series of recent articles, we pointed out that in 2022, the Reserve Bank of India (RBI) abandoned the flexible exchange rate regime that had been in place for three decades and replaced it with a de facto peg against the dollar. We emphasised how this change cost the economy, resulting in an uncompetitive exchange rate and lost exports, overly tight liquidity at a time of decelerating growth, and heightened risks of speculative attacks. This begs an important question: Why did the RBI change policy?
 
The RBI must come out with an official explanation, but until it does, we

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