Timeline of Steps by RBI to Rescue Rupee [16]

Currency crisis give us the best insight into a forex market. As Rupee trades near its life-time low, here’s the timeline of some measures taken by RBI in the past to rescue Rupee.

August 5, 1998

Resurgent India Bond (RIB) was issued to raise around $5 billion. Pokhran tests led to sanctions on India putting pressure on the current account deficit.

December 16, 2011

Interest rates on (NRE) Rupee deposits were deregulated. With this, banks were free to determine their interest rates on both term and saving deposits of maturity of >=1 year for NRE & NRO accounts. The move helped banks mobilise upto $2-3 billion in these deposits.

:rbi:Deregulation of Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) Accounts

November 23, 2011

RBI allowed Indian firms to raise foreign loans at higher interest rates by removing the cap on the interest cost. ECB proceeds could be retained abroad only if there is an expense in foreign currency. Rest, had to be credited into rupee accounts immediately.

:rbi:ECB Policy modified: All-in-cost Ceiling enhanced; ECB raised for Rupee Outlay to be brought in Immediately

On the same day, to attract higher NRE deposits and FCNR (B) deposits, RBI allowed banks to offer higher rates on them. It changed the upper limit from 175 bps on libor/swap to 275 bps points on same.

:rbi:RBI hikes Interest Rates on NRE and FCNR(B) Deposits

Dec. 15, 2011

RBI took slew of measures related to forex trading. It reduced net open position limits of banks and informed them individually. It banned FPIs to re-book forward contracts if cancelled, all cash/tom/spot transactions to be done for actual delivery and cannot be cancelled or cash settled.

:rbi:Risk Management and Inter Bank Dealings


May 2012

RBI asked exporters to convert 50% of the balances in their EEFC accounts into rupees within a fortnight. Also, they could buy dollars only after using the US dollar deposits in their accounts. This was done to bring in supply of dollars in the inter-bank market and prevent exporters from “hoarding” dollars in hope of further fall in rupee. It also meant that India was not fully convertible on “capital accounts”.

:rbi:Exchange Earner’s Foreign Currency (EEFC) Account


June 4, 2013

o discourage non-essential imports, RBI restricted imports of gold on consignment basis and allowed only to meet needs of jewellery exporters.

:rbi:Import of Gold by Nominated Banks /Agencies

July 8, 2013

RBI barred banks from trading in currency futures and options. They could trade in them only for their clients.

:rbi: **Risk Management and Inter Bank Dealings

Also, SEBI reduced position limits and increased margins by 100% on currency derivatives. This was done to prevent excessive “speculative” trading on exchanges as it was leading to further fall in rupee in the spot market. The following paper by RBI analyzes the impact of futures trading on spot prices.

Aug. 8, 2013

RBI introduced Forex Swap Window for PSU OMCs to directly provide them dollars. They needed around $8-8.5 billion/month every month to pay for oil imports.

:rbi:RBI introduces Forex Swap Window for Public Sector Oil Marketing Companies

September 04, 2013

A special swap/forward rate to banks was offered if they raised fresh FCNR (B) deposits for at least 3 years. It was a buy/sell $ swap between RBI and banks. In the first leg, banks would raise these deposits from non-residents and RBI would buy these dollars in return for rupees. In the second leg, RBI would return the dollars at a discounted forward rate of only 3.5% p.a. Given the historical returns on various assets in India, banks found it to be a very attractive deal and raised $30 bn within a few days.

:rbi:RBI Notification - Swap Window for Attracting FCNR (B) Dollar Funds


April 1, 2014

Investments by FPIs in treasury bills were banned and only allowed in G-Secs with residual maturity of one year and above. This was done to prevent the volatility and interest rate and currency market.


Sept. 29, 2015

Masala bonds were introduced. They are rupee-denominated bonds issued by local firms in overseas markets. Indian borrowers will therefore not incur any currency risk. In 2018, withholding tax on masala bonds was removed to make it more attractive for investors.

:rbi:External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas

Nov. 5, 2015

RBI introduced the first tranche of sovereign gold bond scheme to reduce imports of physical gold for investment purposes. Gold imports form a good share of imports thus a drag on rupee.

:rbi:Sovereign Gold Bonds, 2015-16

Apart from them, RBI has also been

  1. Intervening in the local forex spot and derivatives market, and occasionally in NDF markets,
  2. Adjusting Rupee liquidity in the system,
  3. Entering into BUY/SELL swap to increase its forex reserves, and SELL/BUY swaps to provide direct source of dollars to banks,
  4. Relaxing ECB regime for corporates,
  5. Reviewing periodically the investment limits for FPIs in debt and equity.