This huge sum of liquidity reduction would be needed for the central bank to achieve its rate target due to the high level of reserves banks have now, which has curbed their demand to borrow from the federal funds market
RBI Governor Duvvuri Subbarao on Tuesday spoke of unwinding measures to tighten cash conditions once the currency stabilises, but doubts remain about how quickly the central bank can do that.
There is not much room for the RBI to ease policies in the near-term. If some of the pressures on the currency were to dissipate and if inflationary pressures ease a bit, then there might be a rate cut in September or October.
Indian shares may falter ahead as investors eagerly await the Reserve Bank of India's (RBI) first quarter policy review on July 30. Earnings from companies are also expected to keep the market on its toes.
An anorexic under doctor's orders to put on weight might fret unnecessarily about getting fat one day. Today's generally subdued inflation prompts similar worries.