Definition
Crawling Peg
A crawling peg is an exchange-rate regime where a currency is pegged but allowed to adjust gradually within a band, blending fixed-rate stability with slow flexibility.
Under a crawling peg the central bank moves the target rate in small, pre-announced or discretionary steps, often to keep pace with inflation differentials so the currency doesn't become overvalued. Several emerging economies have used variants of this regime.
India operated quasi-managed regimes before fully floating, and the RBI's current approach is sometimes described as a managed float with no fixed band. A crawling peg sits between a hard peg and a free float on the spectrum of currency regimes.
Related terms
- Managed FloatA managed float, or dirty float, is a regime where the exchange rate is largely market-determined but the central bank intervenes to curb excessive volatility.
- Floating Exchange RateA floating exchange rate is determined freely by currency-market supply and demand, with little or no central-bank intervention to fix its level.
- Real Effective Exchange Rate (REER)REER is a trade-weighted index of a currency against a basket of partner currencies, adjusted for inflation differences, measuring true competitiveness rather than a single bilateral rate.
- Currency PegA currency peg fixes a currency's exchange rate to another currency or basket, requiring the central bank to buy or sell reserves to defend the chosen level.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.