Rajan defends apex bank’s move to manage Re volatility

Significantly,the chief economic adviser’s comments come a day after State Bank of India chairman Pratip Chaudhuri had said the RBI should not choke liquidity but consider more transparent measures such as hiking interest rates in order to stabilise the domestic currency.

The RBI had on Tuesday reduced the liquidity adjustment facility for each bank from one per cent of total deposits to 0.5 per cent and also asked banks to maintain higher average CRR (cash reserve ratio) of 99 per cent of the requirement on daily basis as against earlier 70 per cent.

The measures are expected to suck out about Rs 5,000 crore liquidity from the financial sector and also contain the exchange rate volatility.