rupee: RBI has helped the rupee ride out many a crisis


BoP Crisis of 1991

  • The balance of payments crisis of 1991 led to Liberalised Exchange Rate Management System (LERMS) in 1992
  • LERMS was abolished in March 1993 and the fl oating exchange rate regime was adopted
  • Market-based exchange rate regime came into vogue in 1993; current account convertibility in 1994


  • Contagion of Mexican Crisis: Intervened in October to the tune of $912.5 million. Measures initiated to reduce the leads and lags in import payments and export realisation
  • Tightened concessional in export credit for longer periods, Eased CRR on domestic, NRI deposits. Foreign currency-denominated deposits like FCNR(B) and rupee deposits like NR(NR) were exempted from CRR requirements, and interest rates on NRE deposits were increased

January-March 1996

  • Interventions pulled reserves down to $15.9 billion in Feb ’96 from $19 billion in August ’95
  • Interest rate surcharge on import finance raised from 15% to 25%

Aug 1997 to Apr 1998

  • The Asian Crisis led to sales of $978 million in September and $3.1 billion between November and July. To cut arbitrage between forex and rupee markets, fixed-rate ‘repos’ was raised to 5% from 4.5%; CRR raised half a point. Incremental CRR removed on NRERA and NR(NR)
  • Minimum interest rate of 20% on overdue export bills and 15% lending rate on bank credit for imports
  • In Jan ’98 CRR raised to 10.5%; bank rate to 11% from 9%; repo from 7% to 9%
  • Barred banks from overnight currency positions

Aug 1998

  • Floated the Resurgent India Bonds (RIBs) for overseas Indians and received $4.2 billion
  • was allowed to raise Resurgent India Bonds of $5 billion after the economic sanctions because of the Pokhran nuclear tests

Volatility in 2000

  • Interest rate surcharge of 50% of the lending rate on import finance on non-essential imports; Signals sent that RBI could meet government’s debt payments; arrangements for crude import
  • The RBI allowed the to sell bonds to overseas Indians through India Millennium Bonds raising about $7.3 billion
  • 25% interest from the date the export bill fell due
  • Banks advised to enter into transactions in the forex market only on the basis of genuine requirements and not for speculation

Sold $894 million in September 2001 and assured adequate liquidity, foreign exchange; relaxed FII investment limits; package for large exporters; cut rate for export credit


A rupee-dollar swap facility for Indian banks; Special Market Operations (SMO) to meet the forex requirements of oil companies; higher deposit rates for overseas Indians; relaxed ECB norms for companies

Euro Zone Crisis of 2011-12

  • Intervened to sell US dollars; deregulated interest rates on rupee-denominated NRI deposits and enhanced the all-in-cost ceiling for ECBs
  • Raised FIIs’ investment ceiling in government and corporate bonds by $5 billion each to $15 billion and $45 billion
  • Increased interest rate ceiling on FCNR(B) deposits
  • Raised FII investment limit in G-secs by $5 billion to $20 billion

2013: Taper Tantrum 1.0

  • Raised MSF rate to 300 basis points above the repo rate to 10.25%
  • Cut funds under LAF to 1% of NDTL; OMO sale of G-Secs
  • Banks ordered to maintain a minimum daily CRR balance of 99%
  • RBI net sold $10.8 billion in the forex market between May and August 2013
  • Banks barred from proprietary trading in currency derivatives
  • Curbs on gold import only on consignment basis; a fifth of imported gold had to be exported
  • RBI opened a special swap window for banks on 3-year FCNR deposits providing an incentive that cushioned currency risk. It raised $34.3 billion through the window



Read original article here

Denial of responsibility! TechnoCodex is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – [email protected]. The content will be deleted within 24 hours.

Leave a comment