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Interest Rates Unchanged, Demonetization Pangs Almost Over

Interest Rates Unchanged, Demonetization Pangs Almost Over

The Reserve Bank of India left the key tools unchanged of the first Monetary Policy post the Union Budget for Financial Year 2018.

No change in the interest rates indicates that the Central Bank may have shifted its stance and we might not see any further descend in the interest rates, especially in the short and medium run.

In fact the policy shift to a ‘neutral’ stance gives RBI the option to increase or decrease the rates in future, depending on how the other important economic parameters play out.

In December, RBI had left the rates unchanged as it adopted a wait and watch policy with the endeavor to gauge the effects of demonetization. The latest policy decision indicates that the central bank is regulating key tools to achieve the inflation target.

Urjit Patel will have to wade through some more challenges to achieve the aforesaid inflation target. Increasing oil prices, high volatility in exchange rates and higher payout to the salaried class under the 7th Pay Commission may spoil the applecart.

Meanwhile, the RBI also announced that there will be no cash withdrawal limits from March 13. Beginning February 20, the weekly withdrawal limit from saving bank accounts will be Rs 50,000.

RBI Deputy Governor SS Mundra talked about the process of replenishing the old currency with new one. He said, “It is work in progress. There are 4,000 currency chests in the country and RBI also keeps its money at 19 different places. We also have to take into account the old currency notes from countries like Nepal and Bhutan that have special arrangement with Indian government.”

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