Real Exchange Rate Stabilisation and Managed Floating: Exchange Rate Policy in
India, 1993-99
Renu Kohli*
The paper examines the exchange rate management strategy of the Indian central bank after the shift to a
floating exchange rate regime in 1993. A policy reaction function tests for its intervention behaviour and
finds significant effort to lean against the wind during 1993-99. This is tempered with purchasing power
parity considerations as evidenced by the central bank's response to deviations of the spot rate from
moving relative prices' target. This indicates a real exchange rate stabilisation policy by the Indian
authorities.
Keywords: Exchange rate; intervention; exchange rate management; purchasing power
parity; real exchange rate; managed floating; exchange rate target;
JEL Classification Nos. E 58, F3, F31
*
The author is employed by the Reserve Bank of India and currently on deputation to ICRIER. The views
expressed here are however, the author's own and not of the institution to which she belongs. The support
of Ford Foundation is gratefully acknowledged. I am grateful to John Williamson, Montek Ahluwalia,
Michael Melvin, Prof. von Hagen, George Stadtman and Sanjib Pohit for helpful comments on an earlier
version of this paper and the excellent research assistance rendered by Richa Samant. The responsibilities
for errors are solely mine. All corr ...