Monitoring INR liquidity in the Indian banking system: Study of the RBI’s intervention mechanism during the ‘Taper Tantrum’ period of 2013

Abstract

This paper endeavours to evaluate and study the case of INR depreciation in 2013. The huge volatility in the USD/INR rates and the rapid Rupee depreciation during the periods of July – September 2013 in anticipation of QE tapering and fed interest rate hike is a case in point. We have hence studied this period by understanding the implication of USD-INR one day variation on the CBLO rates and the Call money rates. The aim was to check if we could observe a correlation trend between the USD/INR exchange rate and the CBLO and the Call Money rates and also examine the various strategies and the larger framework adopted by the Reserve Bank of India, to monitor and maintain liquidity during the period.