Definition
Managed Float
A 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.
India runs a managed float: the rupee's level is set by supply and demand, but the RBI steps in by buying or selling dollars to smooth sharp swings rather than to defend a specific number. This contrasts with a free float (no intervention) and a hard peg (fixed level).
The goal is orderly markets, not a target rate. During heavy FII outflows or oil-price spikes, the RBI may sell dollars from reserves to slow rupee depreciation; during strong inflows it may buy dollars to prevent excessive appreciation.
Related terms
- Forex ReservesForex reserves are the foreign-currency assets and gold the RBI holds to manage the rupee, pay for imports and meet external obligations during stress.
- 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.
- RBI InterventionRBI intervention is the central bank's buying or selling of foreign currency in the spot, forward or futures markets to manage rupee volatility and liquidity.
- 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.