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India's exchange rate regime under inflation targeting

Author

Listed:
  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

Abstract

While the basic exchange rate regime has stayed the same since the liberalizing reforms of the nineties, its implementation has varied over the years. The paper assesses the evolution of India's nominal exchange rate regime and its suitability under inflation targeting. It also examines the evolving impact on trade, inflation, on currency and financial markets, country risk premium and the cost of borrowing. The analysis suggests a flexible exchange rate with intervention to prevent excess volatility as well as misalignment from competitive real exchange rates, while allowing some volatility to aid price discovery in foreign exchange markets, would work best in inflation targeting emerging markets.

Suggested Citation

  • Ashima Goyal, 2023. "India's exchange rate regime under inflation targeting," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2023-015, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2023-015
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2023-015.pdf
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    References listed on IDEAS

    as
    1. Daniel Rees, 2023. "Commodity prices and the US Dollar," BIS Working Papers 1083, Bank for International Settlements.
    2. Buffie, Edward F. & Airaudo, M. & Zanna, Felipe, 2018. "Inflation targeting and exchange rate management in less developed countries," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 159-184.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    India; exchange rate regime; capital flows; inflation targeting;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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