RBI’s liquidity squeeze unjustified

External risks are weighing heavily on the RBI’s mind. The external shocks the RBI is worried about are of course relating to slide in the external value of the rupee. Volatility in the foreign exchange markets often becomes a cause for concern only when the underlying trend is downwards. Even so, the rationale for liquidity curtailment and enhancing the cost of short-term credit remains unexplained, both in the measures announced in July and in the latest policy review.

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