A year after currency crisis

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On July 15 last year, the Reserve Bank of India announced liquidity-tightening measures to check currency volatility, after the rupee started falling rapidly against the dollar. In July, it had breached the 60-a-$ mark, the first time. The currency had fallen 10% since April 2013. This prompted RBI to make liquidity dearer by increasing the marginal standing facility rate by 200 bps to 10.25% and capping banks' borrowings via the liquidity adjustment facility at 1% of their net demand and time liabilities. This was the first of several measures the Centre and RBI announced in the subsequent weeks to tackle the crisis. Since the rupee hit its nadir on August 28, 2013, (68.85 against the $), becoming the worst performing Asian currency, its fortunes have changed after RBI Governor Raghuram Rajan announced steps to attract inflows on his first day in office (September 4). A look at how changing macroeconomic fundamentals helped the rupee gain strength