The big change has been in fresh loans, where the fall in interest rates in the year after demonetisation has been equal to the fall before note ban, despite the much lower reduction in RBI’s repo rate. Photo: iStockphoto (iStockphoto)
The big change has been in fresh loans, where the fall in interest rates in the year after demonetisation has been equal to the fall before note ban, despite the much lower reduction in RBI’s repo rate. Photo: iStockphoto (iStockphoto)

The impact of demonetisation on interest rates

In the year after demonetisation, even though the RBI repo rate reduced by just 0.25 percentage points, the fall in weighted average lending rate on outstanding loans has been 0.50 points

A year after demonetisation, one of its effects has been a substantial decline in lending and deposit rates. The chart, taken from the Reserve Bank of India’s (RBI’s) monetary policy report, has the details.

The chart shows that in the pre-demonetisation period—December 2014 to October 2016—while RBI lowered the repo rate by 1.75 percentage points, the weighted average lending rate (WALR) on outstanding loans went down by 0.75 percentage points.

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