During 2006–07 and 2007–08, RBI purchased US Dollars 26.8 and 78.2 billion respectively. The direct (fiscal) cost of sterilisation operations to contain the expansionary impacts of RBI’s interventions was significant, at about Rs.
8,000 crore during 2007–08, which goes to show, even with the benefit of hindsight, that intervening in the market to buy foreign exchange in the face of surge in inflows is not necessarily an easy decision. 6. The volatility of the exchange rate, particularly episodes of large unidirectional movement either way, calls for an effective set of policy tools to deal with it.