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Reserve Bank of India’s unusual liquidity tool finds praise in timing, but has exit risks

Reserve Bank of India (RBI). Every time India goes to polls, the Reserve Bank of India (RBI) scrambles to make sure that banks don’t run out of cash. That is because cash leakage from banks is faster in the run-up to elections, as shown by the increase in growth rate of currency in circulation. For a nation trying to get back to its cash levels to pre- demonetization days, before 86% of its notes were rendered invalid, the leakage rate is obviously faster. But this time, the prescription has an unusual additional pill. RBI will buy $5 billion from […]

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