IMF Study: Emerging Market Resilience is Driven by Policy, Validating India’s Inflation Targeting Framework
SDG 8: Decent Work and Economic Growth | SDG 17: Partnerships for the Goals
Ministry of Finance | Reserve Bank of India (RBI)
The IMF Working Paper (WP/25/256), “Emerging Market Resilience: Good Luck or Good Policies?” examines the factors that have allowed Emerging Markets (EMs) to show remarkable resilience during recent “risk-off episodes” (periods of global financial stress). The paper studies 26 emerging markets (EMs) including India that represent almost 90% of the GDP of the ‘Emerging Markets and Middle-Income Economies’ group as classified in the October 2025 World Economic Outlook.
Key Findings on Emerging Market Resilience:
Primary Driver: The analysis finds that while favorable external conditions contributed to this resilience, improvements in domestic policy frameworks (”good policies”) played a critical role in bolstering the capacity of EMs to absorb external shocks.
Policy Function: Effective domestic policy frameworks enhance the ability of Emerging Markets to maintain stable financial conditions and sustain real GDP growth even when global trade and capital flows tighten.
Structural Change: The paper argues that EMs are now structurally better positioned to weather global uncertainty due to these policy enhancements.
A “risk-off episode” refers to a period of generalized financial stress in global markets, often triggered by events like global pandemics, geopolitical crises, or sudden changes in monetary policy in advanced economies (e.g., the US Federal Reserve). During these episodes, investors typically pull capital out of riskier Emerging Markets (EMs) and into safer assets.
India-Specific Relevance
This report provides a strong, evidence-based mandate for India’s policy continuity and structural reforms:
Validation of Domestic Reforms: The finding that domestic “good policies”—rather than reliance on favorable global cycles—are the key driver of resilience validates India’s sustained efforts to strengthen its macro-financial policy frameworks.
Resilience During Shocks: India is highlighted as one of the systemic EMs that displayed resilience during the COVID-19 pandemic, avoiding disorderly balance-of-payments adjustments and maintaining market access through exchange rate flexibility and access to swap lines.
Specific Policy Improvements: India has adopted inflation targeting and greater exchange rate flexibility, which have helped anchor inflation expectations and reduce the pass-through of currency depreciation to domestic prices. Tighter macroprudential regulations have also contributed to financial stability by reducing foreign exchange mismatches.
Central Bank Autonomy: The report emphasizes the importance of central bank independence for maintaining resilience against global financial shocks, directly relevant to the RBI’s ongoing work to maintain its autonomy and credibility in monetary policy implementation.
Sustaining Stability: Policy recommendations urge India to continue strengthening its monetary policy frameworks, ensure clear communication of policy objectives, and safeguard the independence of the RBI to maintain resilience against global financial shocks.
Follow the full update here: IMF Working Paper WP/25/256, Emerging Market Resilience: Good Luck or Good Policies?