One argument towards lowering the interest rate on reserves to zero (as there have been for decades earlier than 2008,) is that this is able to cause issues for cash market mutual funds.
RBI has permitted choose entities (scheduled business banks excluding RRBs and LABs, PDs, all-India FIs, NBFCs, mutual funds, housing finance companies, insurance corporations) to undertake repo in both the repo market. As we all know, industrial banks now have all of the reserves they may want. They might have one other $1 trillion in reserves if the Fed did one other $1 trillion in QE. I believe the reserves are unimportant at this point. Granted, wherever the Fed drains there shall be not less than a brief ‘crowding out’ that must be managed carefully. Goldilocks and all that.
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