As fear gripped major markets, it became increasingly difficult for economic operators and regulators alike not to give in to panic and ensure a level-headed response to a situation which was not only rapidly deteriorating but also clouded with growing uncertainty. The rupee started depreciating as foreigners disinvested from both stocks on the local exchange and dumped Government paper.
It did not matter one iota that domestic banks had no exposure to toxic assets and had reduced non-performing loans to a historically low level. And, for that matter, it did not help that an international rating agency chose this year to threaten the two largest domestic banks with a possible downgrade. How did we react to these various external shocks and threats?