RBI: Interest Rates Unchanged | Fusion - WeRIndia

After the demonetization, many people expected that there would be a cut in the rate of interests by Reserve Bank of India (RBI). However, RBI announced that the rates of interest would stay the same in its latest monetary policy review.

Many people expected that there would be rate cuts but RBI clearly mentioned that this time there would be no changes yet. The rate would stay at 6.25 per cent.

In the latest review presented by RBI, under the liquidity adjustment facility the repo rate will be kept the same at 6.25 per cent. Similarly, the reverse repo rate will be at 5.75 per cent.

Furthermore, RBI has decided to keep its Cash Reserve Ratio (CRR) at 4 percent and bank rate at 6.75 percent even though there has been an increase in liquidity.

This is the first time the RBI’s monetary policy has been reviewed after the demonetization of old ₹500 and ₹1000 notes. RBI’s decision to keep the rates unchanged breaks the expectations of many people who thought that there would be cuts in interest rates.

Many experts predicted that there would be at least a reduction of 0.25 percent (25-basis point) in the policy rate.

The Monetary Policy Committee is a six member committee. They discussed this decision and announced it. This is the second meeting of MPC headed by RBI Governor Urjit Patel. The first was in October.

In the first meeting in October, RBI cut the repo rate. That is the short-term lending rate. There was a reduction of 0.25 percent. RBI has reduced the policy rate by 1.75 percent since January 2015.

This is the second time, the monetary policy would be based on the recommendation of MPC.

In addition to this, RBI already took steps to get rid of excessive liquidity from Banks. They already decided on 100 per cent incremental increase in Cash Reserve Ratio (CRR).

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