This study investigates the exchange rate pass-through (ERPT) to domestic prices in India, incorporating the role of monetary policy credibility under the flexible inflation-targeting (FIT) regime. Using monthly data from 2011M1 to 2024M12, the analysis accounts for recent socio-economic and geopolitical shifts that may introduce structural breaks and distort long-run relationships. The key findings of the present study are as follows: unit root tests with double endogenous breaks confirm non-stationarity in the series, and the Hatemi-J (2008) cointegration test establishes a stable long-run relationship between domestic price and its covariates. The autoregressive distributed lag (ARDL) model, accommodating two break dates, reveals partial ERPT, with the short-run effect substantially smaller than the long-run, reflecting nominal rigidities and incomplete price adjustment. Monetary policy exerts a countervailing influence by dampening the inflationary effects of exchange rate movements, indicating an effective expenditure-changing response to expenditure-switching pressures. The novel contribution of the study is to examine short- and long-run ERPT effects on prices while accommodating a monetary policy variable to investigate the implications of EPRT and expenditure-changing policy under double endogenous structural breaks in the unit root test and subsequent cointegration analysis. The findings highlight that the Reserve Bank of India’s FIT framework has strengthened policy credibility and mitigated external inflation transmission. The study emphasizes the importance of maintaining credible monetary policy to balance price stability with output growth in an increasingly open and volatile macroeconomic environment.
