The Central Bank has preferred to keep the Repo Rates unchanged in the Monetary Policy Committee (MPC) meeting. However, it changed the Reverse Repo Rate to 6% which is the rate paid by RBI for excess deposits kept, by a quarter point.
The purpose of doing so was with a view to decrease the alteration to money market rates, which again is attributed to the increase in the liquidity, caused by the increase in bank funds after demonetization. The RBI had formulated measures to tackle the excess liquidity caused by demonetisation, which makes the interest rate policy less meaningful.
Further the RBI Governor remarked that Loan waivers will obviously harm the economy, since it undermines an honest credit culture which in turn has an effect on the borrowers’ interest to repay the dues. Even Government paying the lenders should not be encouraged he added.