While the PDs may prefer the comfort of assured liquidity at a fixed interest rate, the compulsions of liquidity management and interest rate operations demand that we ensure alignment between support to PDs and other monetary operations of the RBI. The real issue is one of smooth transition from assured liquidity support at pre-determined interest rates to a market determined liquidity support from RBI.
Exchange rates are always bilateral in nature but eliminating arbitrage requires that adjustments are inevitable once bilateral rates are linked, i.e., from euro to pound to dollar to peso.