The plan that was devised to counter these problems was one of a gradual appreciation of the exchange rate (achieved through adjustment of the daily fix), lower short-term interest rates but increased sales of government securities to fund the fiscal deficit, which was likely to see longer-term yields increase.
That is, it was thought that currency speculators would be deterred by the very low short-term rates, notwithstanding the higher yields on offer at the longer end. This would help achieve the M3 target by reducing the liquidity resulting from capital inflow.