the reserve bank of india rbi in its sixth bimonthly policy statement for the year on february 8 2017 may have to delay the repo rate cut until a better picture emerges out of the remonetisation exercise thanks to demonetisation the banks are already flush with funds and any rate cut may not deliver the desired results according to a recent citigroup report the remonetisation exercise may hold the rate cut back as it is expected to be more effective after the remonetisation exercise is concluded fully and there is absolute clarity on the increase in lendable resources for the banks what needs to be deciphered is how much of these funds will remain within the banking system which should help the banks and the regulator to take a better call on interest rate recently economic affairs secretary shaktikanta das had said the exercise of remonetisation that began after scrapping of the old rs 500 and 1000 notes on november 8 is nearly complete as practically there are no restrictions on withdrawals he added i am using the word nearcomplete because this rs 24000 limit is there the central bank will keep reviewing the weekly limit in the near future depending on the pace of remonetisation on the other hand in continuation of its earlier policy stance and also to provide a boost to the demonetisationhit gross domestic product gdp the rbi may go for a cut in the repo rate a repo rate the rate at which the banks borrow from the rbi cut will help the banks lower their cost of funds and provide credit at a lower rate thus bringing in a benign interest rate environment for corporate and retail borrowers inflation in a low interest rate environment with cash easily available the risk of the inflation rate going up exists hence unless the rbi is convinced that the inflation is under control the magnitude and timing of the rate cut will be impacted recent data shows that retail inflation rose for the fifth straight month in december 2016 touching 561 per cent on the back of higher vegetable and cereal prices even the global oil prices are firming up government borrowings signal lower interest rate regime to meet a portion of its expenses the government borrows from the market by issuing dated government securities and in doing so it squeezes liquidity from the market thus putting pressure on the interest rate so when the government announces that it will limit its borrowing programme for the year it signals a lower interest rate regime such a signal was there in budget 2017 when the finance minister arun jaitley announced limiting the net market borrowing of the government to rs 348 lakh crore much lower than rs 425 lakh crore of the previous year irrespective of what the central bank does tomorrow wednesday the existing borrowers with marginal cost of funds based lending rate mclr loans and those who have already locked their funds in fixed deposits fds