India should allow the dollar-rupee exchange rate to move as the first line of defence amid the ongoing oil shock, an IMF official said on Wednesday.
"Our advice to countries is to use the exchange rate as the first line of defence amid ongoing shocks," Krishna Srinivasan, director of the Asia and Pacific Department at the IMF, said at a media briefing in Mumbai. "We would advise India to let the exchange rate move."
The Reserve Bank of India has intervened heavily to support the rupee via dollar sales from its reserves, a special window to offer dollars to oil companies and reserve requirements for large hedge requirements.
The rupee, which fell to near record lows earlier this month has rebounded about 2% following the central bank's steps.
Foreign-exchange interventions have not been particularly beneficial beyond the near term due to the oil shock, Srinivasan said, adding that exchange rates have to be shock absorbers.
In June, India also cut taxes on foreign investments in government debt and raised $134 billion via a dollar deposit scheme targeted at the Indian diaspora.
The forex measures taken by the RBI in June like cutting taxes on foreign debt investments were largely positive as they encouraged capital inflows, said Ranil Salgado, senior representative for India, Bhutan and Maldives at the IMF.
