What is Crawling Peg Mechanism?


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CRAWLING PEG MECHANISM:
One of the systems developed under the Adjustable Peg concept was the ‘Crawling Peg
Mechanism’. The revision in the parity rates was connected to inflation rates and thus this
system relied substantially on the Purchasing Power Parity Theory which provided a
relationship between exchange rates and inflation rates. Under this system the exchange
rate would be pegged to a major international currency. The parity rate would be revised at
fixed intervals based on the inflation rate differential between the domestic currency and
the host currency to which it was pegged.
a) The exchange rate reflected the changes in the underlying economy vis-a-vis the
host currency.
b) The need for interventions was reduced.
c) Provided for better utilisation of foreign currency reserves.


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MT UVA BMS

MT UVA- University, Vocational and Affiliated Education for BMS

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