..............The Reserve Bank of India (RBI) fought the currency shock with an interest rate shock. While this textbook response may work when financial markets are efficient it is not the case in India today. As such there is a risk that the negative effect of RBI’s measures on financial market stability and economic growth may far outweigh the beneficial effects, if any, on currency stabilization. Indeed, the debt and money markets have already been thrust into the whirlpool...................
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