RBI squeezes liquidity, makes macro situation worse

Putting to rest doubts about how it would deal with the conflicting pressures from growth and rupee depreciation, the Reserve Bank of India (RBI) moved quite decisively in apparent response to the latter. It first capped daily borrowing by banks from the repo window to Rs 75,000 crore, which is about one per cent of deposits and the limit of the RBI's comfort zone. It then raised the interest rate on the marginal standing facility (MSF), which is normally 100 basis points above the repo rate, by 200 points, taking it to 10.25 per cent.

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