Highlights:
RBI curbs speculation to stop the Rupee’s decline.
In 2013, Raghuram Rajan saved the Rupee through FCNR(B) swaps.
In 1997, Bimal Jalan averted the crisis with ‘Resurgent India Bonds’.
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The ongoing Iran war has not only shaken borders but also rattled the global economy. Inflation is skyrocketing, stock markets are plunging, and the Indian Rupee has surfaced among the worst performers among Asian currencies.
To tackle these emergency-like conditions, the Reserve Bank of India (RBI Crisis Measures 2026) has opened its ‘crisis playbook’. Late Wednesday night, the RBI suddenly announced major decisions that have revived memories of the 2013 ‘Taper Tantrum’ and the 1997 Asian financial crisis.
RBI’s Big Move: Cracking Down on Speculation
To halt the Rupee’s fall, the RBI first tightened the screws on banks. Last Friday, the RBI restricted the Net Open Rupee Position of banks to just $100 million. Previously, banks were allowed to hold positions up to 25% of their capital. Immediately after this, the RBI barred banks from offering ‘Non-Deliverable Forwards’ (NDF).
In simple terms, the RBI has blocked the avenues where speculation (Arbitrage trades) was being conducted against the Rupee’s value. This single decision forced banks to wind down trades worth nearly $30 billion. The RBI’s message is clear—the stability of the Rupee is paramount.
Lessons from 2013: Raghuram Rajan’s Strategy
The year 2013 was a turning point when the US Federal Reserve signaled a pullback of its easy monetary policy (Taper Tantrum), leading to capital flight from emerging markets like India. At that time, then Prime Minister Manmohan Singh handed the reins of the RBI to Raghuram Rajan. Rajan adopted a ‘surgical strike’ strategy to save the Rupee:
FCNR(B) Swap Window: Banks were provided a subsidized facility to raise foreign currency deposits, bringing $26 billion into India in just 3 months.
Restrictions on Gold: To reduce the Current Account Deficit, the import duty on gold was hiked to 10% and the strict ’80:20′ rule was implemented.
Interest Rate Hike: To combat inflation, the repo rate was increased to 8%.
The 1997 Crisis and Bimal Jalan’s Wisdom
Looking back at history, the 1997 Asian financial crisis also offers a significant lesson. The fire that started in Thailand engulfed all of Southeast Asia. India survived then because we had not fully opened our economy.
Then-Governor Bimal Jalan, instead of letting the Rupee crash abruptly, allowed it to adjust gradually by 18%. Additionally, he raised $4 billion from NRIs through ‘Resurgent India Bonds’ (RIB), which strengthened our foreign exchange reserves.
What Lies Ahead ?
The current crisis is deep, as uncertainty persists regarding the Trump administration’s stance on the Iran war front. The RBI is currently utilizing its old strategies—monetary tightening, capital controls, and liquidity management.
History bears witness that India has effectively used its foreign exchange reserves and strict regulations to fight every crisis. Now, it remains to be seen how quickly and effectively these latest maneuvers by the RBI can stabilize the Rupee.
