‘Open market operation was aimed at liquidity management,not a yield signal’

I believe that the action taken by RBI was a step in the right direction. The objective was to decrease the quantum of liquidity and increase the cost of short term liquidity,thereby making the carrying cost for funding the speculative activity in the Indian currency market more prohibitive. This,I believe,will be a short-term measure and will have a positive impact of stabilising the rupee.

The RBI hiked short-term rates,but it refused to offer higher yields on Rs 12,000 crore bond auction. How do you read this strategy?

The open market operation (OMO) was a liquidity management measure and not a yield signalling measure. Hence,the action of the RBI offering G-Secs through OMOs to the extent of Rs 2,500 crore at the then prevailing secondary market yield level needs to be seen in that light.

How will these measures impact the governments borrowings?

Since the RBI step was to increase the cost of short term liquidity in the market,it is not expected to have a large impact on government borrowings. But the short-term borrowing cost may go up as long as the steps continue.

The rupee situation has not improved much. Should the RBI change strategy?

The RBI action has brought stability. The RBI is on the right track and needs to review the steps as soon as rupee stability is achieved on a sustained basis.