RBI may revive 2013 ‘taper tantrum’ strategy as rupee weakens against US dollar

The Reserve Bank of India (RBI) is reportedly considering reviving its 2013 “Taper Tantrum” strategy to stabilise the Indian rupee amid its continued decline against the US dollar. According to the report, the central bank is examining a series of measures, including raising interest rates, increasing dollar liquidity, and attracting foreign currency inflows to prevent further pressure on the currency.

The reported move comes as global economic uncertainty and tensions linked to the Iran-US conflict continue to impact international financial markets. The rupee has weakened steadily against the dollar in recent months, increasing concerns over import costs and pressure on India’s external sector. India relies heavily on crude oil imports, making the domestic currency sensitive to global commodity and currency fluctuations.

According to the report, RBI Governor Sanjay Malhotra indicated that the central bank is considering additional currency swap arrangements and measures to attract more dollar inflows from foreign investors. The RBI is also reportedly evaluating options such as overseas dollar-raising mechanisms involving non-resident Indians and other liquidity-support measures to maintain stability in the foreign exchange market.

The term “Taper Tantrum” refers to the market turmoil witnessed in 2013 after the US Federal Reserve began reducing liquidity support. During that period, foreign investors withdrew funds from emerging markets, leading to a sharp fall in the rupee, pressure on equity markets, and increased volatility in the Indian economy. In response, the RBI introduced emergency measures to stabilise the currency and restore investor confidence.

The 2013 strategy included selling US dollars from India’s foreign exchange reserves, raising interest rates, and encouraging foreign currency inflows into the country. According to the report, the RBI may now consider using similar measures again to prevent further depreciation of the rupee and maintain adequate dollar availability in the market amid ongoing external economic pressures.