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

• 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

1995

• 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

THE 9/11 TERRORIST ATTACKS
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

THE LEHMAN COLLAPSE AND THE GLOBAL FINANCIAL CRISIS

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