RBI Governor D Subbarao today said liquidity tightening steps were not a panic reaction and he refused set a timeline to reverse them, justifying the measures to tame the rupee and keep policy rates unchanged.
"We are as anxious as anyone else to roll these back. But getting locked into a time frame is both not feasible and inadvisable," Subbarao told reporters at the customary post-policy meeting here this afternoon.
"The RBI is sensitive to the short-term costs of these tight liquidity measures on economic activity."
Presenting his 20th monetary policy, Subbarao left all key policy rates unchanged and called for urgent measures from the government to contain the current account deficit, which is the main reason for the rupee declining close to 12 per cent since April 1.
The recent liquidity tightening measures are aimed at checking undue volatility in the foreign exchange market and will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, the RBI said.
"I don't agree with those charges (of being divergent in our stance and panicky). There will be pain in the economy, somebody will have to pay a cost for this, those costs are inevitable and unavoidable," he said.
He further said the rollback of these measures is state-contingent and data-dependent and linked to the decline in volatility and disorderly movements in the exchange rate.
Explaining the rationale for the July 15 and 23 measures to tighten liquidity, the Governor said, "Forex intervention is a standard tool for defending against volatility. As much as we resorted to that instrument, we were also conscious that we should not fuel speculation or help speculators.
