>[!summary]- Forex Market Interventions and Sterilisation > - [Exchange Rate Policy](#Exchange%20Rate%20Policy) > - [Capital Flows](#Capital%20Flows) > - [Forex Market Intervention (Both Buy & Sell):](#Forex%20Market%20Intervention%20(Both%20Buy%20&%20Sell)) > - [Intervention (in times of inflows)](#Intervention%20(in%20times%20of%20inflows)) > - [Sterilisation](#Sterilisation) > - [Forex Intervention - efficacy and trade-offs in the Indian experience](#Forex%20Intervention%20-%20efficacy%20and%20trade-offs%20in%20the%20Indian%20experience) > - [Sterilisation](#Sterilisation) > - [Methods of Sterilisation:](#Methods%20of%20Sterilisation) > - [Market-Based](#Market-Based) > - [1. Liquidity Adjustment Facility (LAF)](#1.%20Liquidity%20Adjustment%20Facility%20(LAF)) > - [2. Open Market Operations](#2.%20Open%20Market%20Operations) > - [2.1 MSS](#2.1%20MSS) > - [3. [Forex Swaps](Foreign%20Exchange%20(Forex)%20Swaps.md)](#3.%20[Forex%20Swaps](Foreign%20Exchange%20(Forex)%20Swaps.md)) > - [4. Central Bank Securities](#4.%20Central%20Bank%20Securities) > -[Non-Market Based](#Non-Market%20Based) > [5. Cash Balances of the Government of India with the Reserve Bank](#5.%20Cash%20Balances%20of%20the%20Government%20of%20India%20with%20the%20Reserve%20Bank) > [6. Standing Deposit Facility](#6.%20Standing%20Deposit%20Facility) > [7. CRR - Cash Reserve Ratio](#7.%20CRR%20-%20Cash%20Reserve%20Ratio) > [8. Other policy responses to absorb excess liquidity](#8.%20Other%20policy%20responses%20to%20absorb%20excess%20liquidity) > [9 . Variable deposit requirements](#9%20.%20Variable%20deposit%20requirements) > [Global Perspective:](#Global%20Perspective) > [Cost of Sterilisation](#Cost%20of%20Sterilisation) > [Effectiveness of Sterilisation of Central Bank Interventions](#Effectiveness%20of%20Sterilisation%20of%20Central%20Bank%20Interventions) > [Alternative to Sterilisation](#Alternative%20to%20Sterilisation) > [Liquidity and Forex Operations](#Liquidity%20and%20Forex%20Operations) > [Related Data Releases](#Related%20Data%20Releases) > [Related Notes](#Related%20Notes) > [References](#References) This is a note talks about forex market interventions and the subsequent liquidity management (sterlisation) Main Note - [Foreign Exchange Management](Foreign%20Exchange%20Management.md) > Tags: #sterlisation #forex ## Exchange Rate Policy 1. This [[Exchange Rate Policy|note]] has more details ## Capital Flows 1. This [[Capital Flows - Account & Management|note]] has more details, including management of capital flows ## Forex Market Intervention (Both Buy & Sell): ^b0e905 1. This is one of the options for EMEs to [[Capital Flows - Account & Management#^e14c93|respond to capital flows]]. 2. From March 1993, India follows the market determined exchange rate regime, so it allows the exchange rate of rupee to be determined by market forces. 3. Usually, episode of a large accumulation (or depletion) coincide with abnormal global economic and financial developments. 4. In the 1990s, RBI intervened as a net buyer of dollars in the times of inflows to prevent appreciation of Rupee. 1. **1996-97** 1. RBI's outright spot and forward [purchases](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231#:~:text=1997%2C%20the%20RBI-,intervened,-in%20the%20spot) of US dollars during 1996-97 amounted to $ 7.9 billion and $ 0.9 billion, respectively. Swap purchases amounted to $ 2.4 billion. While spot sale of US dollars was marginal, forward and swap sales amounted to $ 0.3 billion and $ 3.1 billion, respectively [^8]. 2. Thus, net purchases of US dollars during 1996-97 amounted to $ 7.8 billion. 5. It was however the abolition of automatic monetization (since April 1, 1997), and allowing the marketization (selling bonds in the open market) of Government borrowings enhanced RBI's capacity to conduct open market operations to sterilize the capital inflows. 6. ==It's interventions in the forex market are aimed to contain or cushion the disruptive excess volatility in the exchange rate of rupee, maintaining orderliness in the forex market and curbing speculative tendencies, and not governed by any predetermined target or band around the exchange rate. 7. Another reason is that the exchange rate affects optimal decision making of the economic agents in the real sector. 8. ==However, there has been no symmetry in intervention in times of appreciation/depreciation of rupee.== 9. The fluctuations in exchange rate is mostly due to capital inflows and outflows. The movement of the Indian rupee is largely influenced by the capital flow movements rather than traditional determinants like trade flows. 1. Dollar sales in the foreign exchange market are generally guided by excess demand (for dollar) conditions that may arise due to several factors. 2. Similarly, the Reserve Bank purchases dollars from the market thereby increasing its reserves, when there is an excess supply pressure in market due to capital inflows. 1. India runs a current account deficit country and is dependent on large and lumpy capital flows for financing the current account deficit. We need enough lenders to finance the large current account deficit. Before 1991, India had twin problems. 2. On trade side, bulk demands for oil imports and government payments get bunched up on many days. 3. As India runs a large CAD, and hence, from the perspective of available reserves, buying US dollars in times of excess capital flows may seem preferable to selling US dollars. But this purchase of dollars (absorption of capital flows) is also limited by the extant magnitude of the current account deficit 4. Given the dependence on volatile capital flows, there may be a case for augmenting forex reserves to reduce vulnerability to international financial shocks; stabilize the exchange rate; and in many cases, it does both to varying degrees. 5. Indirectly, the level of reserves are an important parameter in gauging a country’s ability to absorb external shocks. 3. Demand-supply mismatch as shown by the difference between the purchase and sale transactions in the merchant segment of the spot market reveals a strong co-movement between demand-supply gap and intervention by the Reserve Bank *(Dua & Ranjan, 2010, Exchange Rate Policy and Modelling in India - [Chart 2.2](https://rbi.org.in/scripts/PublicationsView.aspx?id=12252#C22)).* 4. Thus, the Reserve Bank makes sales and purchases of foreign currency in order to even out lumpy demand and supply in the (times of relatively thin) foreign exchange market and to smoothen jerky movements. 5. RBI intervenes without any bias for a particular exchange rate band. 10. This allows a orderly movements and helps businesses plan their exposure, and signal macroeconomic and financial stability 11. **Choice of market for intervention:** 1. This impact on the domestic liquidity and volatility along with other prevailing market conditions influences the choice of market for [[Measures to stabilise the exchange market#^569d8e|intervention]] which can vary from spot to derivatives, that is rupee-settled OTC (spot, forwards, swaps) or ETCD (futures, options) or dollar-rupee (FCY-settled) offshore Non-Deliverable Forwards [[RBI_Research_Working Paper Series_2108_Does Offshore NDF Market Influence Onshore Forex Market? Evidence from India_RBI.pdf|(NDFs)]]. 2. ==But it intervenes mainly in the spot and forward segments (physically settled onshore and USD-settled offshore) of the foreign exchange market.== 1. If there is only forward purchase instead of spot it will have the desired effect on the spot rate, only if it is not countered by very large spot inflows from participants like FIIs and forward supplies by exporters who wish to take advantage of the increase in premium 3. The Reserve Bank’s gross market intervention should also be evaluated as a per cent of turnover in the foreign exchange market along with absolute terms, which was US$ 84 billion in 2008-09 ([Table 2.3](https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12252#T23)). 12. **Major phases of volatility** 1. 1996-97 1. RBI's outright spot and forward [purchases](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231#:~:text=1997%2C%20the%20RBI-,intervened,-in%20the%20spot) of US dollars during 1996-97 amounted to $ 7.9 billion and $ 0.9 billion, respectively. Swap purchases amounted to $ 2.4 billion. While spot sale of US dollars was marginal, forward and swap sales amounted to $ 0.3 billion and $ 3.1 billion, respectively [^8]. 2. Thus, net purchases of US dollars during 1996-97 amounted to $ 7.8 billion. 2. 2003-04 - RBI’s gross market intervention as a per cent of turnover in the foreign exchange market was among the highest in 2003-04. 3. 2006–08 - RBI intervened in the market to buy US dollars. 1. 2007-08 - RBI intervened as buyer leading to large accretions to reserves in these periods. The inflows were an outcome of abundant supply of global liquidity. 4. 2008 ^7c87fa 1. 2008 also saw one of the highest intervention of US$ 84 billion in 2008-09 ([Table 2.3](https://rbi.org.in/scripts/PublicationsView.aspx?Id=12252#T23)). 2. In Sept. 2008, following the Lehman collapse, RBI sold US dollars in order to stabilise exchange rate in the aftermath the of global financial crisis. 3. In October 2008 alone, when the contagion of the global financial crisis started affecting India, the RBI sold US$ 20.6 billion in the foreign exchange market. This was the highest intervention till date during any particular month. 5. 2011 1. In 2011 after the US long-term rating was downgraded by one of the rating agencies in early August 2011, the rupee along with other emerging market currencies fell very sharply. RBI sold dollars 6. 2013 1. During the taper tantrum of 2013 when the USD-INR exchange rate had depreciated by around 13.82 per cent in a matter of one month from July 29, 2013 to August 28, 2013 due to large capital outflows. To counter sharp depreciation, the RBI adopted extraordinary measures by providing a USD-INR swap facility for banks to attract non-resident deposits and raising the short-term interest rate ceiling by 300 basis points for a certain segments of non-resident deposits[4](https://rbi.org.in/scripts/PublicationsView.aspx?Id=21340#F4). 7. 2016 1. Q4 of 2016 - The maturing of these deposits matured in Q4 of 2016 had resulted in large capital outflows, which were offset to a large extent by FDI inflows. Due to balancing flows, this episode did not result in any increased volatility of the Indian Rupee. Thus, modulating the overall size of capital flows, through its various components, is an essential part of Indian external sector policies 8. 2020-21 1. RBI intervened as buyer leading to large accretions to reserves in these periods. The inflows were an outcome of abundant supply of global liquidity. 13. For durable impact, interventions in times of global liquidity inflows have often been combined with measures involving capital account liberalisation and monetary policy 14. Signalling - It also issues statements to media channels like [this](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=18714) to signal its intention that it does not hesitate to prevent any kind of overshooting. >This section is a [[Measures to stabilise the exchange market#^ddbe2a|summary]] of monetary policy and other responses by RBI to foreign exchange market pressures. ## Intervention (in times of inflows) 1. Let us consider a case of capital inflows. 2. A large surge in flows over a short span of time in ==excess of the domestic absorptive capacity can, however, be a source of stress to the economy. 1. The absorption of excess capital flows is limited by the extant magnitude of the current account deficit, which has traditionally been low in India, and up to 2010, seldom above 2 per cent of GDP. 2. *India’s CAD has increased sharply to 4.8 per cent of GDP in 2012-2013.* 3. Large capital inflows create important challenges for policymakers because of their potential to generate 1. overheating of the economy, 2. loss of competitiveness for exporters by upward pressures (appreciation of the rupee) on the exchange rate. The net impact depends upon the price elasticity of our exports and the changes in the level of exchange rate of trading partner and competing countries. *At the same time, a fall in rupee may also not boost exports (which is the case of India), or reduce imports.* 1. While some countries have allowed the exchange rate to appreciate as result of flows, in many cases monetary authorities have intervened heavily by purchasing foreign exchange in forex markets to resist currency appreciation. 2. Thus, intervention has also served as a potent instrument in containing the magnitude of exchange rate volatility of the rupee. 3. *But there is no rigid formula [(Rangarajan, 1997)](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231#:~:text=Governor%2C%20Reserve%20Bank%20of%20India%2C%20Dr.%20C.%20Rangarajan%2C%20mentioned%20in%20his%20address%20at%20the%20Annual%20Presentation%20Ceremony%20of%20the%20Engineering%20Export%20Promotion%20Council) for this but rather a need to balance this act. [^7] 1. This is because price stability is critical to the economy as a whole, to both the poor and exporters. 2. The containment of domestic price increase has the same beneficial effect as the depreciation of the nominal exchange rate. 3. In times of inflows, if the nominal exchange rate is stabilized at a certain level by letting the foreign exchange assets of the central bank to increase, it may have an adverse effect on the exporters through price increase arising from more than the desired increase in money supply. There can therefore, be no rigid formula governing exchange rate determination. 4. Monetary authorities need continually to perform a balancing act between ensuring an exchange rate which will be supportive of exports and the need to contain monetary expansion within reasonable limits. 5. Rather the extent, pace and the manner of change in exchange rate due to intervention is always taken in conjunction with money supply, since price stability continues to be the dominant objective of monetary policy. 3. and increased vulnerability to crisis. 4. ==Box II.13-Impact of Exchange Rate Movement (Appreciation/Depreciation) on the Economy in the [[RBI_Annual Report_2010.pdf#page=89&selection=95,0,95,47|Annual Report 2010]].== 4. To absorb/neutralize these large or excess forex flows on account of a large capital account surplus, the central bank has intervened in the foreign exchange market at regular intervals with purchase transactions. These net capital inflows could be in the form of: 1. Private capital flows (net) - FPI (debt, equity), FDI (equity) and other investments like loans (ECB, short-term loans like trade credits), *NRI deposits (FCNR(B), NR(E)RA)*, and other changes in assets & liabilities , ~~not inward remittances~~ #capitalaccount 2. [[Govt_Budget 2025-2026_250201_External Assistance.pdf|External assistance]] (net) to the government of India in form of ^b264c4 1. aid receipts (non-repayable grants like cash grants, commodity aid) from agencies like GFATM (treated as current account receipt), 2. loans (repayable) 1. bilateral loans from countries like Germany, Japan, Russia, France, South Korea, 2. loans from multilateral agencies such as World Bank group (IBRD, IDA), ADB, NDB, EIB, AIIB, IFAD 3. But this particular source of supply of foreign exchange does not go into the interbank forex market and to that extent does not reflect itself in the true determination of the value of the rupee. This is because with the government having no foreign currency account, the external aid received by the Government comes directly to the reserves and the RBI releases the required rupee funds. 4. It is added to the [[WSS - Weekly Forex Reserves#1.1 Foreign Currency Assets (FCA)|FCA]] component of forex reserves #fca 5. ==Here FPI, FDI and NRI deposits are major sources of [[Half-Yearly Report of Forex Reserves#1.2.2. Sources of variation of foreign exchange reserves|variation of forex reserves]] for India.== 6. Major sources of capital flows are FPI, FDI, ECB and banking capital like NRI Deposits 1. We can also say that the supply and demand (volume/turnover) in the foreign exchange market is largely determined by these transactions in the capital account (Financial Account under the IMF-BoP framework) such as 1. foreign direct investment (FDI) to India and by India, 2. inflows and outflows of (FPI) portfolio investment to India and by India, 3. other investments - loans (short-term loans like trade credits, external assistance, external commercial borrowings (ECB) and its amortisations), banking capital like NRI deposit, and their amortisations/repayments/redemptions. 2. Another point to be mentioned here is that with the government having no foreign currency account, the external aid received by the Government comes directly to the reserves and the RBI releases the required rupee funds. Hence, this particular source of supply of foreign exchange e.g. external aid does not go into the market and to that extent does not reflect itself in the true determination of the value of the rupee. 7. India runs a current-account deficit, that is a negative current account balance. So we have net outflows on these combined items-merchandise trade balance, and invisibles like services, remittances, income like interest receipts, etc. 1. Because of this, modulating the overall size of capital flows, through its various components, is an essential part of Indian external sector 8. When RBI purchases foreign exchange like US dollars from the market, it pays for the same in rupees thereby injecting “rupee liquidity” into the banking system. 9. This accretion/increase in foreign exchange assets (NFA-net change in forex assets) leads to expansion of reserve money (RM) (and alters domestic liquidity conditions) in following ways: 1. consistent with the required increase in RM during the year, in which case no absorption of liquidity may be necessary; 2. higher than the required increase in RM, thereby necessitating absorption of liquidity as the excess liquidity can push down money market interest rates below the policy rate and lead to inflation; 3. less than the required increase in RM in which case the central bank may have to inject liquidity over and above what is already injected through intervention. 10. **1996-1997** 1. Let us consider the case of 1996-97. As RBI had intervened, the accretion in foreign exchange reserves also increased the currency in circulation. 2. To sterilise the accretion in reserves, though partially, RBI had tightened monetary policy as [^5] RBI also did not have enough stock of marketable securities to sterilise the intervention through open market sale of government securities. 3. It did have sufficient govt. paper but issued at 3% and 4% several decades ago. 4. Also, fiscal deficit had risen to 7.5 percent of GDP but was budgeted to fall to only 4.7%. 5. The increased monetary expansion had also the increased the availability of capital in the economy, increased inflation, reduce real interest rates and stimulated investment. 11. Let us consider scenario of **surplus** liquidity in the banking system, that is liquidity being more than the cash needs of a growing economy, or may not be in consistent with monetary policy stance. 1. RBI does not follow a fixed rate of growth of money supply, but rather a flexible money supply targeting, and this has actually laid the foundations for what we follow now as flexible inflation targeting *(Rangarajan, C., Forks in the Road: My Days at RBI and Beyond (New Delhi: Penguin Business, 2022).* 12. This necessitates durable (or temporary) liquidity absorption operations by the RBI depending on the state of cash/durable liquidity needs the economy, and goals of monetary policy. ## Forex Intervention - efficacy and trade-offs in the Indian experience 1. As we just discussed about intervention, we can also review a related concept of efficacy of intervention. 2. One fact which gets ignored is liberalisation of imports of gold which has brought a large segment of unofficial imports and forex market into the official sector and reduced large transaction costs incurred in foreign exchange. 3. In fact, meaningful development of forex markets was enabled by this measure and consequently effectiveness of intervention in forex markets enhanced. [^2] 4. This [[Forex Intervention - Efficacy and Trade-offs in the Indian Experience - OPEN|note]] has more details. ## Sterilisation This removal of excess liquidity by RBI after forex purchases is called sterilization. However, sterilization can apply after either side of intervention. If RBI sells foreign exchange and liquidity becomes tight, the RBI may inject liquidity. This injection is also sterilization. 1. Sterilisation is not required if the increase in reserve money aligns with the demand in the economy or an increase in reserve money is less than required. 2. Intervention thus is of two types: sterilised and non-sterilised. 1. Intervention is sterilised if the sale or purchase of foreign currency is accompanied by expansionary or contractionary open market operations, so that domestic money supply is insulated from the effects of foreign exchange sale/purchase. 2. Intervention is unsterilised if the sale or purchase of foreign currency is not accompanied by offsetting open market operations. The impact of sterilised and unsterilised intervention on exchange rates can be quite different. 3. *It is to be noted that the increase in NFA due to aid receipts (until the rupee equivalent is transferred to the banks to be spent by govt.), revaluation and the RBI’s income on its foreign assets does not have a monetary impact, commensurately reducing the need for sterilisation.* 4. The liquidity impact of interventions is best justified by the well-known “impossible trinity” – an independent conduct of monetary policy, a fixed exchange rate (or a managed exchange rate through interventions) and free cross border capital flows are simultaneously incompatible. *(RBI Bulletin, 2018) > 1. December 02, 2003- ==The Reserve Bank’s Working Group on the Instruments of Sterilisation (Chairperson: Smt. Usha Thorat) submitted its [report](https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=342) on December 02, 2003==. > 2. [Box VIII.1-Instruments of Sterilisation](RBI_Annual%20Report_2004.pdf#page=130&selection=55,0,62,25) in RBI's Annual Report of 2004 > 3. ==Box II.13-Impact of Exchange Rate Movement (Appreciation/Depreciation) on the Economy in the [[RBI_Annual Report_2010.pdf#page=89&selection=95,0,95,47|Annual Report 2010]].== > 4. [[RBI_Annual Report_2018.pdf#page=111&selection=89,0,89,30|Box III.1-Sterilisation of Capital Flows]] in Annual Report 2018 > 5. Box III.1 - [Liquidity Management Challenges from Forex Market Operations](RBI_Annual%20Report_2025.pdf) in RBI's Annual Report-2025 ## Methods of Sterilisation: ^7f55eb The methods to sterilize the foreign exchange market intervention, partly or wholly, by RBI would include following: ## Market-Based ### 1. Liquidity Adjustment Facility (LAF) 1. [[Liquidity Adjustment Facility (LAF)|LAF]] operations help RBI to manage day-to-day liquidity by absorbing/supplying funds by selling/buying govt. securities through reverse repo/repo auctions respectively. 1. To sterilise inflows, RBI absorbs liquidity through reverse repo under LAF (or SDF) and makes access to liquidity difficult for banks by tightening the access of banks under LAF and MSF. 2. *The latter is more adopted for 2 reasons:* 3. ==Absorption under LAF, has not been effective to sterilize liquidity of 'durable nature'.== Experience also suggests that the absorption/provision of short term/frictional liquidity does not substitute fully for that of the durable liquidity, though durable liquidity can substitute for short term/frictional liquidity needs. 4. This instrument cannot, however, be used in the current context when there is plenty of liquidity in the money market and there is no borrowing from the central bank. However, this instrument may go [against](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231#:~:text=Discount%20policy%2C%20which,and%20credit%20policy.) the long-term objectives of monetary and credit policy. This instrument may also go against the long-term objectives of monetary and credit policy. 5. Also the reverse repo transactions under LAF with banks require RBI to have adequate stock of government securities. There is a risk of depletion. 6. Hence, LAF have been used only for limited periods along with other instruments like MSS and outright OMO. 7. *The interest costs involved in absorption of liquidity through reverse repo under LAF or SDF are included in the balance sheet of the Reserve Bank.* ### 2. Open Market Operations 1. The LAF operations have been supplemented by outright [Open Market Operations (OMOs)](Open%20Market%20Operations%20(OMOs).md), i.e. outright sales of the government securities, to absorb liquidity on an enduring basis. 2. They have been the main instrument of sterilization for RBI. 3. A sample [press release](https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=47295) for OMOs. 4. They are repurchase (repos and reverse repos) and outright transactions. Here, OMOs refer to the outright (buy/sale) transactions. 5. For absorbing excess liquidity in system, RBI conducts sale of securities through OMOs. As RBI has a limited stock of government securities, OMO operations cannot continue for longer periods. 1. Example [here](https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=47334) 2. Mismatch could also be created by using long term securities to absorb short term flows. OMO sales involve permanent absorption of liquidity. 6. Drivers of base/primary money creation in the economy - <span style="color:#0047AB;">A [[Reserve Money.md#^1cef6c|note]] on how OMOs and forex operations both can modulate each other.</span> 7. ==OMO sale can also push yields on govt. securities (unless there is very strong demand) and other debt instruments higher, leading to further capital flows into debt, due to higher interest rate differentials.== 1. This could lead to the original problem of high capital flows, making sterilised interventions ineffective. Even if interventions are not sterilised, excess liquidity can push down money market interest rates below the policy rate and lead to inflation. Consequently, an increase in the policy rate to address inflationary pressures may invite further yield-seeking capital flows.== In such scenarios, RBI may impose capital controls (like capping portfolio investments in both government securities and corporate bonds.) or deploy other tools to manage capital flows This would limit the potential inflows when sterilised intervention widens the yield differential. 8. Thus this policy is useful temporarily and if used for long, leads to renewed inflows. RBI, however, is well equipped with physical stock of government securities. It also manages temporary liquidity conditions through repo transactions. Here the idea is to realise a fine balance in order to achieve the objectives of sterilisation without putting pressure on yields [^9]. 1. **Capital Controls:**-Changes in policies are made from time to time to modulate the capital flows into debt also depending on the (i)financing needs of the corporate sector and (ii)vulnerability of the domestic economy to external shocks. 9. Along with intermittent OMO operations, there are also other methods that help RBI to manage the durable liquidity added into the system. 10. <span style="background-color:#ffffe5;">Challenges with OMOs - [[Market Stabilisation Scheme (MSS), 2004|MSS]] as an solution.</span> 11. Large forex interventions (NFA) also change significantly the composition of the RBI’s balance sheet, that is in terms of the_sources of expansion in reserve money. 12. This has some challenges. 13. The resultant decline in net domestic assets (NDA) can lead to *collateral constraints* to the Reserve Bank’s market-based liquidity absorption operations, that is any future outright sales of securities and reverse repo auctions. 14. Rather the usage of the stock (entire) of securities for outright open market sales (OMO sales) for sterilisation can be constrained by [^12]: 1. the allocation of a part of the securities for day-to-day LAF (reverse repo) operations, 2. investments of surplus balances of the central government, 3. investments by the state governments in respect of earmarked funds (CSF/GRF), 4. and the fact that the some of the government securities were also in non-marketable lots until [[Treasury Bills (T-Bills)#^1d4d71|2003-04]]. 15. Under conditions of persistently large surplus liquidity, this constraint could become binding. 16. Thus there was a need for scheme aimed that could maintain the efficacy of the monetary policy that was expected to reduce in the face of limited holdings of govt. securities to sterilise liquidity arising from large capital inflows that required intervention in the foreign exchange markets. 17. Hence, between 2001 and 2003, the high capital inflows and sharp rise in RBI's holdings of forex assets led to the introduction of Market Stabilisation Scheme (MSS) in April 2004. 1. The world had entered into an era of abundant dollar liquidity with the Fed Fund Target rate falling from 6.5% in January 2001 to 1.75% in January 2002, then to 1.25% in January 2003 and finally, to 1% by July 2003. 18. It is a different thing that seeds of a crisis (GFC of 2008) that would overtake the global financial system five years later were allegedly being sown and nurtured by the overhang of cheap global liquidity 19. *In 2006 and 2008, the share of forex assets reached almost 89 %* 1. The external sector developments in India have been marked by strong capital flows, 2. This though also led to an appreciating tendency in the exchange rate of the Indian rupee up to January 2008. 20. But RBI was able to effectively sterilise surplus liquidity by a mix of instruments with varying degree of effectiveness, like issuing securities ==under the MSS along with OMO sales and CRR hikes. 21. In times of capital outflows during the global financial crisis, large scale OMO purchases met the normal expansion in RM in the following years (up to 2012-13). This led to some moderation in the share of foreign assets in the total assets of the Reserve Bank in recent years. 22. Still, after RBI’s credit to government, changes in net foreign assets have become a [[Reserve Money#^2e0fb8|major]] source of the creation/expansion of [[Reserve Money|reserve money]]. 23. Quasi-fiscal (semi fiscal) cost - Sterilisation through OMOs also have quasi-fiscal [[Forex Market Interventions and Sterilisation#Cost of Sterilisation|costs]] by driving down seigniorage when higher-yielding assets are replaced by lower-yielding ones. >[!info]- Share of Foreign Currency Assets in Total Assets of RBI >![[Screenshot 2025-05-06 at 3.21.36 PM.png]] > Source - Raj, J., Pattanaik, S., Bhattacharya, I., & Abhilasha. (2018, August). _Forex Market Operations and Liquidity Management_. Reserve Bank of India Bulletin. [Link](https://www.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=17703 > **Table format:** > | Year | Share of Foreign <br>Currency Assets <br>(%) | | ---- | -------------------------------------------- | | 2001 | 46.9 | | 2002 | 58.9 | | 2003 | 70.2 | | 2004 | 86.1 | | 2005 | 84.3 | | 2006 | 88.9 | | 2007 | 83.8 | | 2008 | 88.8 | | 2009 | 86.5 | | 2010 | 75.0 | | 2011 | 70.3 | | 2012 | 65.6 | | 2013 | 63.8 | | 2014 | 67.0 | | 2015 | 73.9 | | 2016 | 71.1 | | 2017 | 71.7 | | 2018 | 73.9 | #### 2.1 MSS 1. Given the challenges with OMOs, [[Market Stabilisation Scheme (MSS), 2004|Market Stabilisation Scheme (MSS)]] was launched on Feb 23, 2004 as an solution. ### 3. [Forex Swaps](Forex%20Swaps.md) 1. As market stabilisation scheme (MSS) has a limit, RBI had to come up with other methods to drain liquidity due to its forex purchases. 2. When RBI buys dollars from the spot market, it adds rupees into the system. It has an option to delay this creation of liquidity by doing a SELL/BUY ==[forex swap](Forex%20Swaps.md)==. 3. Under this swap, RBI sells dollars along with an agreement to buy them back at a specified price in the future. It does it on the same day when it buys dollars from the market. Thus the liquidity added into system is “sterilized” as it sells dollars and absorbs back the supply of rupees. However, the addition of liquidity is just “delayed or postponed” because RBI has also entered into a forward contract to buy back those dollars. 4. Central banks like those of South Africa and Australia have been using such swaps to postpone liquidity creation due to foreign exchange inflows. 5. In other words, swaps, act like pseudo capital outflows, and delay the creation of money. 6. When rupee appreciated by around 9-11% per cent since January 2007, RBI decided to experiment with sell/buy swaps in June 2007 as a tool to drain liquidity. The [Working Group on Instruments of Sterilisation, 2003 *(Chairperson-Usha Thorat)](RBI_Group-Committee_20031212_Report%20of%20the%20Working%20Group%20on%20Instruments%20of%20Sterilisation.pdf#page=30&selection=5,2,7,11)* had proposed sell/buy swaps for a short tenor as longer tenors could prompt banks buying dollars under the swap to lend it for commercial purposes. The corporate clients would take those borrowed dollars, and convert them into Rupees to spend domestically. To prevent these converting dollars from appreciating the Rupee all over again, the RBI would be forced to again buy those dollars and execute successive buy/sell swaps on the "same amount of dollars". 7. For RBI, the cost of such swaps is the difference between G-sec yield (which is earned by investing the absorbed rupee proceeds during the tenor of the swap) and the implied rupee cost of the forward leg. 8. **Forward Purchase:** 1. Instead of buying dollar in the spot market to offset capital flows, RBI can also decide to purchase dollars in the forward market. 2. Both (i)spot purchase (intervention) +sell/buy swap (sterilisation) or (ii)only forward purchase (intervention) delay the immediate absorption of dollars, which only happens in future, that is at maturity of swap/forward (if not rolled over at maturity). 3. ==But both distort or impact or adds volatility to forward rates in a fairly thin market unless there is a constant swap window., as the presence of RBI as a large buyer (in this case) of dollars at future date influences the demand-supply conditions, besides interest rate differentials (it increases the forward premia).== 1. The forex interventions in the form of forward purchases are found to be associated with increase in forward premia (RBI, 2021) [^10]. 2. In other words, the [[Forex Reserves#^d51759|benefit]] of lower forward premium due to higher stock or adequate level of official reserves is reduced. 9. **Related Notes:** 1. [Forex Swaps](Forex%20Swaps.md) 2. [Currency Swaps](Bilateral,%20Multilateral%20Swaps,%20LoC,%20Liquidity%20Arrangements.md#Currency%20Swaps) ### 4. Central Bank Securities 1. RBI does not issue its own securities. ## Non-Market Based ### 5. Cash Balances of the Government of India with the Reserve Bank 1. The cash balances of the govt. of India with the RBI is mainly raised by: 1. increasing the notified amount of 91-day Treasury Bill auctions 2. prepayment of external loans using the available rupee balances so that the rupee money remains with RBI instead of circulating in the banking system. ### 6. Standing Deposit Facility 1. As there is a cap on bills that could be issued under MSS, RBI felt that another tool was needed to manage surplus liquidity situations arising out of forex interventions. 2. This facility allows RBI to absorb excess liquidity from banks without any collateral in exchange. 3. This [[Standing Deposit Facility (SDF), 2018|note]] has further details. ### 7. CRR - Cash Reserve Ratio 1. RBI could prevents the rupees that it has injected into banks through foreign exchange purchase from expanding the supply of M3 by raising Cash Reserve Ratio [[Cash Reserve Ratio (CRR)|(CRR)]]. 2. CRR is a certain percentage of cash that all Scheduled Commercial Banks are at present required to maintain with Reserve Bank of India. This amount is calculated based on Net Demand and Time Liabilities (NDTL). As on July, 2019, Cash Reserve Ratio (CRR) is set at 4.00 percent of NDTL. 1. RBI has used CRR successfully in the past, to stem/discourage inflows. 1. On April 1997, RBI had announced the imposition of a 10% CRR on all incremental non-resident (NRI) deposits over the level outstanding on April 11, 1997 which lead to the deceleration in the growth of foreign currency deposits during the financial year of 1997-98. 3. ==The problem with this tool is that it has a blanket impact on all banks irrespective of their liquidity position.== Hence, when compared to reverse repos/OMOs in their ability to withdraw surplus liquidity, raising CRR is not a very comfortable or attractive option. 4. Also, funds under CRR does not yield any returns for banks, the returns forgone impacts the banking system has a kind of “tax”. 5. CRR also works in favor of financial intermediaries that are not required to maintain balances with the Reserve Bank. 6. This measure, while it reduces the need for costly sterilisation through sale of bonds, may result in misallocation of resources and reduce the facility to borrowers to take advantage of lower international interest rates ### 8. Other policy responses to absorb excess liquidity Few other policy responses by RBI to absorb excess liquidity, emanating from the purchase of foreign exchange during strong capital flows have been: 1. Private placements for pre-payment of external loans and 2. Liberalisation of foreign exchange transactions, that is easing restrictions on capital outflows. 1. In view of the large capital flows during the past few years, relaxations were effected in regard to outflows, both under the current and capital accounts. ### 9 . Variable deposit requirements 1. Variable deposit requirements in the nature of interest free deposits with the central bank, like Chile's URR in 1990, is another form of discouraging capital inflows. 2. This measure, while it reduces the need for costly sterilisation through sale of bonds, may result in misallocation of resources and reduce the facility to borrowers to take advantage of lower international interest rate ## Impact of non-sterilisation >[!normal] >1. RBI may lose control over interest rates thereby undermining the effectiveness of monetary policy, which may also lead to depreciation of the exchange rate. > 1. If the excess liquidity injected through forex purchases during times of capital flows is not sterilised (__i.e__., non-sterilised interventions), then excess liquidity could drag down the operating target of monetary policy and other money market interest rates below the policy interest rate. > 1. The resulting fall in money market rates under a non-sterilized regime boosts domestic demand (including the demand for imports) while simultaneously triggering capital outflows as investors seek higher yields abroad. > 2. Both the surging imports and the capital outflows heavily increase the demand for foreign currency, causing the domestic currency (Rupee) to depreciate. > 3. Thus, non-sterilized intervention and exchange rate depreciation are positively related: a higher quantum of non-sterilized intervention leads to a greater fall in the value of the Rupee > 4. Hence non-sterilised intervention directly influences the exchange rate through the monetary channel *(Dua and Sen, 2009).* > 2. If surplus liquidity is sterilised, depending on the choice of instrument for absorption of liquidity, market interest rates may be aligned with monetary policy stance. >2. Also, persistent surplus liquidity over a longer period, could stoke inflation, which, in turn, could result in loss of export competitiveness >3. Hikes in the policy interest rate as a tool to tame this inflation may however, widen the interest rate differential, thereby triggering further inflows leading to more volatility in exchange rate, and thus defeating the very objective of intervention. >4. Thus central banks generally conduct sterilisation operations to neutralise the monetary impact of its operations in the foreign exchange market. ## Issues/Cost of Sterilisation 1. OMOs to sterilise forex flows can drive up yields of govt. securities attracting more capital flows. 2. Present size of holdings of govt. securities with RBI may not be enough to sterilise large capital inflows, requiring creation of special securities (like MSS) 3. Depending upon the aforementioned tools, the cost of sterilisation in India is shared by 1. the Central Government (the cost of MSS) - the direct cost borne by the Government is transparently shown in its budget accounts 1. the net cost for govt. = -interest rate on MSS securities + interest rate on forex assets *(received from RBI as year-end surplus)* 2. Reserve Bank (sterilization under LAF/OMOs/CMBs) 1. Sterilisation through sale of govt. securities also have positive quasi-fiscal costs by driving down seigniorage when higher-yielding Indian assets are replaced by lower-yielding forex assets. 2. and the net cost for RBI = -interest rate on G.Sec + interest rate on forex assets, and 3. Hence the net cost is identical in both (Govt. & RBI) cases 4. In other words, since surpluses of the RBI are transferred to the central govt., whether it is the RBI or the govt. doing the sterilization, the govt. loses the higher domestic bond yield and gains the lower foreign asset yield. 5. So on a combined balance sheet basis, the relative burdens of cost between the Government and Reserve Bank are not of great relevance. 3. and the banking system (in case of increase in the reserve requirements). 3. This cost can also be traded-off or seen with the benefits associated with sterilisation: 1. maintaining efficacy of monetary policy, 2. preventing inflation due to increased money supply (M0) 3. preventing the loss of export competitiveness and 4. possible crisis avoidance in external sector 4. Thus it is more of a quasi-cost or opportunity cost. 5. A short [[Market Stabilisation Scheme (MSS), 2004#Cost of Sterlisation|note]] on cost of sterlisation ## Effectiveness of Sterilisation of Central Bank Interventions 1. An assessment of sterilisation coefficient and offset coefficient, hence, is important [^11]. 2. Both coefficients have a range between 0 and -1. 1. Sterilisation coefficient - Change in net domestic assets-NDA (quasi fiscal as it is a cost to the govt.) on the balance sheet of the RBI due to the change in net foreign assets (NFA) arising from forex market interventions gets captured in the sterilisation coefficient (i.e., represents the drain of the NDA from the policy response of sterilisation). 1. A move towards a higher negative value reflects higher sterilisation with a value near -1 indicating full sterilisation of excess reserve money from forex market interventions. 2. On the other hand, the change in NFA due to change in NDA from sterilisation operations gets captured in the offset coefficient – indicating the effectiveness of the sterilisation. 1. For offset coefficient, a value near 0 indicates monetary policy independence through effective sterilisation. 2. While a value near -1 for offset coefficient indicates complete ineffectiveness of sterilisation with perfect capital mobility, i.e., monetary policy tightening would induce equal and offsetting foreign inflows thus completely impinging on the independence of monetary policy 3. [Table 2: Estimates of Sterilisation and Offset Coefficients](RBI_Research_DEPR_20220921_Monetary%20Policy%20Independence%20under%20a%20Flexible%20Exchange%20Rate%20Regime%20–%20The%20Indian%20Case.pdf#page=13&selection=20,0,25,50) [^14] ==The effectiveness of sterilised interventions, however, may occasionally become an issue for the independent conduct of monetary policy.== ## Alternative to Sterilisation 1. Between 2003–2005, many emerging markets (including India) were receiving large capital inflows: 2. So can RBI abosorb large inflows without huge sterilisation costs for the central bank? 3. The Prasad–Rajan (2005) Idea: [^3] 1. A tool that mixes capital account management, mutual funds, and foreign reserves. 2. Create closed-ended mutual funds in the domestic country (India). These funds issue shares in domestic currency (₹) to domestic investors. The fund uses the rupees it collects to buy foreign exchange from the central bank and invests abroad. 3. Thus it would be a closed-ended private-sector foreign- asset funds. 4. The idea here is to convert unused “excess reserves into a tool for capital liberalisation (a source for outward investment by residents). 4. **What does this achieve–capital flow management, financial sector development, productive use of FX reserves?** 1. No sterilisation cost 2. Domestic investors diversify globally - Indians get a safe way to invest abroad through a regulated fund. 3. Helps develop domestic markets - the new products will deeper financial markets. 4. Central bank retains control - Because funds are closed-ended, licensed, monitored 5. **Issues:** 1. Negative carry problem - The fund will invest foreign reserves abroad, but yields abroad are often low. Domestic investors will not like earning very low returns compared to Indian assets. So investor appetite may be weak and the scheme may not take off. 2. Moral hazard - If the mutual fund is licensed _specifically by the central bank_, people may assume that RBI is behind this and hence it must be safe. Even if RBI gives no guarantee, investors may expect RBI to rescue them if returns are poor. This creates moral hazard -Investors take more risk assuming "someone" will bail them out. 3. Private sector intermediary issue - It may create confusion about who is responsible, expectation of support, governance issues. And private intermediaries may chase risky foreign assets to boost returns and adding risk for the system. In other words, this scheme privatizes a part of the national FX reserves. 4. Loss of control: The dollar reserves are no longer held by RBI and not available for RBI intervention. ## Liquidity and Forex Operations 1. This [[Liquidity and Exchange Rate|note]] has more details ## Related Data Releases 1. This [[Foreign Exchange Management#Data Releases|section]] has list of data releases related to the foreign exchange management. ## Related Notes 1. [Liquidity and Exchange Rate](Liquidity%20and%20Exchange%20Rate.md) 2. [[Forex Intervention - Efficacy and Trade-offs in the Indian Experience - OPEN]] 3. [[Market Stabilisation Scheme (MSS), 2004]] ## References 1. C. Rangarajan. (1997, August 1). Current trends in India’s exports \[Speech\]. RBI Bulletin, 51(9), 687–691. (Address delivered at the Award Presentation Ceremony of the Engineering Export Promotion Council, Mumbai, August 1, 1997) 2. Y.V. Reddy. (1997, August 15). Exchange Rate Management : Dilemmas \[Inaugural Address\]. XI^th National Assembly Forex Association of India at Hotel Cidade De Goa. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231) | [pdf](RBI_Speech_19970815_Exchange%20Rate%20Management%20-%20Dilemmas_Y.V.Reddy.pdf) 3. Virmani, A. (2001). India’s BoP Crisis and external reform, Technical report, ICRIER. [[ICRIER_Research_0112_India's BoP Crisi and External Reforms- Myths and Paradoxes_Arvind Virmani.pdf|pdf]] 4. RBI. (2003, Dec). [Report]((https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=342)of the Working Group on Instruments of Sterilisation (Chairperson: Usha Thorat). [pdf](RBI_Group-Committee_20031212_Report%20of%20the%20Working%20Group%20on%20Instruments%20of%20Sterilisation.pdf) | [Summary of the Report](RBI_Group-Committee_20031202_Summary%20of%20the%20Report%20of%20the%20Working%20Group%20on%20Instruments%20of%20Sterilisation.pdf) 5. Rakesh Mohan. (2008, February 1). _Capital flows to India_ \[Paper\]. Annual Meeting of Deputy Governors, Bank for International Settlements, Basel. Reserve Bank of India [Link](https://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=374) 6. Reddy, Y.V. (May 26, 2008). *Fiscal Policy and Economic Reforms* \[Speech\]. National Institute of Public Finance and Policy (NIPFP). Reserve Bank of India. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=393) 7. Dua, P., & Ranjan, R. (Feb 25, 2010). Exchange rate policy and modelling in India. RBI-[DRG Studies Series](DRG%20Studies%20Series.md). [Link](https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12252) | [pdf](RBI_Research_DRG_20100225_Exchange%20rate%20policy%20and%20modelling%20in%20India.pdf) 8. G. Padmanabhan. (Sept. 13, 2011). *Forex Market Development – Issues and Challenges – Thoughts of a Returning Forex Market Regulator.* \[Speech\]. RBI Bulletin. [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=12508#F0) | [pdf](RBI_Speech_20110913_Forex%20Market%20Development%20–%20Issues%20and%20Challenges%20–%20Thoughts%20of%20a%20Returning%20Forex%20Market%20Regulator_G.%20Padmanabhan.pdf) 9. Raj, J., Pattanaik, S., Bhattacharya, I., & Abhilasha. (2018, August). _Forex Market Operations and Liquidity Management_. Reserve Bank of India Bulletin. [Link](https://www.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=17703) 10. Rakesh Tripathy. (2013, October). _Intervention in foreign exchange markets: The approach of the Reserve Bank of India_ (BIS Papers No. 73). Bank for International Settlements. [Link](https://www.bis.org/publ/bppdf/bispap73l.pdf) | [[BIS_130221_Intervention in foreign exchange markets- the approach of the Reserve Bank of India_Mr. Rakesh Tripathy,RBI_RBI.pdf|pdf]] [^1] 11. RBI. (2022, April 18). Foreign Exchange Reserves Buffer in Emerging Market Economies: Drivers, Motives and Implications. Monthly Bulletin [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=20941) | [pdf](RBI_Monthly_Bulletin_Article_202204_Foreign%20Exchange%20Reserves%20Buffer%20in%20Emerging%20Market%20Economies-%20Drivers,%20Motives%20and%20Implications.pdf) 12. Grewal, H. S., & Trivedi, P. (2022, September 21). Monetary policy independence under a flexible exchange rate regime – The Indian case (RBI Working Paper Series No. 14/2022). RBI-Working Paper Series (WPS). [Link](https://rbi.org.in/scripts/PublicationsView.aspx?Id=21340) | [pdf](RBI_Research_DEPR_20220921_Monetary%20Policy%20Independence%20under%20a%20Flexible%20Exchange%20Rate%20Regime%20–%20The%20Indian%20Case.pdf) ### Others 1. Jang Yuang Lee (1997, March). _Sterilizing capital inflows_ (Economic Issues No. 7). International Monetary Fund. [Link](https://www.imf.org/external/pubs/ft/issues7/index.htm](https://www.imf.org/external/pubs/ft/issues7/index.htm) 2. Narendra Jadhav. (April 4–6, 2005). _Exchange rate regime and capital flows: The Indian experience_ [Paper presentation]. Chief Economists' Workshop, Centre for Central Banking Studies (CCBS), Bank of England, London, UK. [pdf](Narendra%20Jadhav_200504_Exchange%20Rate%20Regime%20Capital%20Flow.pdf) [^1]: This paper was prepared by Mr. Rakesh Tripathy of the Reserve Bank of India under the guidance of Mr. G. Mahalingam and Mr. Harun R. Khan for the Emerging Markets Deputy Governors‘ Meeting hosted by the Bank for International Settlements on 21 and 22 February 2013 at Basel. [^2]: Y.V. Reddy. (2002, May 10). *India’s Foreign Exchange Reserves : Policy, Status and Issues*. National Council of Applied Economic Research, New Delhi. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=109) | [[RBI_Speech_20020510_India’s Foreign Exchange Reserves - Policy, Status and Issues by Y.V. Reddy_.V. Reddy.pdf|pdf]] [^3]: Reddy, Y. V. (2006, September). _Foreign exchange reserves: New realities and options_ SpeechSpeechSpeech. Program of Seminars, “The World in Asia, Asia in the World,” Singapore. RBI. | [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=300) [^5]: Virmani, A. (2001). *India’s bop crisis and external reform, Technical report, ICRIER*. [[ICRIER_Research_0112_India's BoP Crisi and External Reforms- Myths and Paradoxes_Arvind Virmani.pdf|pdf]] [^6]: _Current trends in India’s exports_. _RBI Bulletin, 51_(9), 687–691 [^7]: C. Rangarajan. (1997, August 1). Current trends in India’s exports \[Speech\]. RBI Bulletin, 51(9), 687–691. (Address delivered at the Award Presentation Ceremony of the Engineering Export Promotion Council, Mumbai, August 1, 1997) [^8]: Dr. Y.V. Reddy. (1997, August 15). Exchange Rate Management : Dilemmas \[Inaugural Address\]. XI^th National Assembly Forex Association of India at Hotel Cidade De Goa. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231) | [pdf](RBI_Speech_19970815_Exchange%20Rate%20Management%20-%20Dilemmas_Y.V.Reddy.pdf) [^9]: Dr. Y.V. Reddy. (1997, August 15). Exchange Rate Management : Dilemmas \[Inaugural Address\]. XI^th National Assembly Forex Association of India at Hotel Cidade De Goa. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231) | [pdf](RBI_Speech_19970815_Exchange%20Rate%20Management%20-%20Dilemmas_Y.V.Reddy.pdf) [^10]: RBI. (2022, April 18). *Foreign Exchange Reserves Buffer in Emerging Market Economies: Drivers, Motives and Implications. Monthly Bulletin* [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=20941) | [pdf](RBI_Monthly_Bulletin_Article_202204_Foreign%20Exchange%20Reserves%20Buffer%20in%20Emerging%20Market%20Economies-%20Drivers,%20Motives%20and%20Implications.pdf) [^11]: Grewal, H. S., & Trivedi, P. (2022, September 21). _Monetary policy independence under a flexible exchange rate regime – The Indian case_ (RBI Working Paper Series No. 14/2022). Reserve Bank of India, Department of Economic and Policy Research. [Link](https://rbi.org.in/scripts/PublicationsView.aspx?Id=21340) | [[RBI_Research_DEPR_20220921_Monetary Policy Independence under a Flexible Exchange Rate Regime – The Indian Case.pdf]] [^12]: Dua, P., & Ranjan, R. (2010, February 25). _Exchange rate policy and modelling in India_. RBI-DRG Studies Series. [Link](https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12252) | [pdf](RBI_Research_DRG_20100225_Exchange%20rate%20policy%20and%20modelling%20in%20India.pdf) *Page last edited: 4-April-2025* [^13]: [^14]: Grewal, H. S., & Trivedi, P. (2022, September 21). *Monetary policy independence under a flexible exchange rate regime – The Indian case*. RBI Working Paper Series No. 14/2022). RBI-Working Paper Series (WPS). [Link](https://rbi.org.in/scripts/PublicationsView.aspx?Id=21340) | [pdf](RBI_Research_DEPR_20220921_Monetary%20Policy%20Independence%20under%20a%20Flexible%20Exchange%20Rate%20Regime%20–%20The%20Indian%20Case.pdf)