When the foreign exchange market was characterised by considerable uncertainties in May to June 1998, several measures were announced by the RBI in June 1998 to reverse the demand/supply mismatches in the market. The market responded positively to these measures, but in August 1998 there were fluctuations in the exchange rate in view of international developments.
The RBI again undertook strong administrative and monetary measures, which included an increase in the repo rate and the cash reserve requirement of banks. A vigilant and proactive policy by the RBI was, therefore, essential to avoid crisis in a highly unsettled atmosphere in international currency markets.