Reserve Bank of India took a number of steps to tighten liquidity and raise rates in mid-July. As a consequence of these steps interest rates today are up to 400 basis points higher than they were in the beginning of July. While this rate hike is reminiscent of the rate hike of 200 basis points by Bimal Jalan on January 16, 1998, when he stepped in to defend the rupee in the Asian crisis, such a steep policy rate hike has never been done before. Moreover, it was implemented through non-transparent and quantitative measures that have damaged the operating procedure of monetary policy..........
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