RBI (Reserve Bank of India) in its 6th bi-monthly policy statement for the year on 8th February, 2017, may have to hold back the repo rate cut until something emerges out of the remonetisation exercise. All credit goes to demonetisation because of which banks have sufficient funds and rate cut may not lead to good results.
A Citigroup report states that, rate cut may be delayed because of remonetisation exercise since rate cut will be more effective when remonestiation exercise is fully concluded and there is transparent clarity on increase in lendable resources for the banks.
Shaktikanta Das, Economic Affairs Secretary stated that, the remonetisation exercise which started after the scrapping of old 500 and 1000 rupee notes on 8th November, 2016 is almost complete as withdrawl restrictions has been withdrawn. He also stated, the weekly limit will be reviewed by the central bank in the near future based on remonetisation pace.
However, based on the continuation of RBI’s earlier policy stance as well as to provide boost to GDP (gross domestic product), the RBI may introduce a repo rate cut. But, with the possibility of the inflation rate going up, the RBI may first ensure that the inflation is under control and then, introduce a repo rate cut which will again change the timing and magnitude of the rate cut.