Adds IMF quotes, background from paragraph 2, graphic

By Jaspreet Kalra

MUMBAI, Nov 26 (Reuters) - The IMF said on Wednesday it has reclassified India's "de facto" exchange rate regime as a "crawl-like arrangement", two years after branding the framework "stabilised".

The move follows an IMF article IV review earlier this year and could influence how global investors interpret India’s foreign exchange framework and its tolerance for volatility.

"While the exchange rate has exhibited increasing two-way movement this year, there remains room for additional exchange rate flexibility," the International Monetary Fund said.

The rupee has declined about 4% over the year so far and its volatility has risen under Reserve Bank of India Governor Sanjay Malhotra, who took charge of the central bank late last year.

The currency INR=IN hit an all-time low of 89.49 against the U.S. dollar on November 21, bogged down by persistent headwinds spurred by steep U.S. trade tariffs which have dented trade and inward portfolio flows.

'CRAWL-LIKE ARRANGEMENT'

The IMF defines as crawl-like arrangement as being when the exchange rate remains within a "narrow margin of 2% relative to a statistically identified trend for six months or more (with the exception of a specified number of outliers), and the exchange rate arrangement cannot be considered as floating".

The IMF first moved to the "stabilised" classification for India from "floating" in December 2023 and consequently retained the tag for the period of December 2022 to November 2024.

Allowing greater exchange rate flexibility would help absorb external shocks, reduce the need for costly reserve accumulation and encourage FX market development, the IMF added.

While the Indian central bank continues to intervene in the FX market to limit outsized swings, the rupee's 1-year realised volatility has jumped above 5% compared to a below 2% reading before Malhotra took over at the central bank.

The RBI's increased tolerance for rupee volatility has also prompted local companies to more actively manage foreign exchange risks, a move which analysts say helps enhance the economy's resilience to global shocks.

Malhotra has said the RBI does not target a specific rupee level and interventions are meant to curb excessive volatility.

(Reporting by Jaspreet Kalra; Editing by Jane Merriman and Alexander Smith)

((jaspreet.kalra@thomsonreuters.com))