Recent measures by the RBI to further drain banking sector liquidity have led some to think that a hike in the reverse repo rate is imminent. But we disagree and think that liquidity-withdrawal measures will still need to be ramped up further before the central bank raises policy rates. Meanwhile, the fuel tax cuts announced by the central government this week will help to keep inflationary pressure contained. But at the same time, they should not have a major impact on the improving fiscal outlook.
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