MUMBAI, May 19 (Reuters) – India will start withdrawing its value currency notes that are highest from circulation, the central bank said on Friday, in a move that economists said could boost bank deposits at a period of high credit development.
The withdrawal of 2,000-rupee ($24.5) notes – which the finance ministry’s top official, T.V Somanathan, said wouldn’t normally cause interruption “either in normal life or in the economy” – also comes ahead of elections in four large states by the end of the year and a ballot that is national spring 2024.
Most of India’s governmental parties are thought to hoard money in high denomination bills to fund election campaign costs to have around tough investing limits imposed by the Election Commission.
Announcing the withdrawal, the Reserve Bank of India (RBI) said proof showed the denomination was not being trusted for deals.
The notes will remain tender that is legal it added, but people will prone to be expected to deposit and exchange them for smaller denominations by Sept. 30.
“The stock of banknotes in other denominations remains sufficient to fulfill the money requirement of the public that is general” the RBI included in a declaration.
The 2,000 rupee note had been introduced in 2016 after the Narendra government that is modi-led withdrew 500 and 1000 rupee denominations in an attempt to remove forgeries from blood flow.
There is evidence that is a plan that is little, but the move did produce a systemic shortage of money by firmly taking away 86% related to the economy’s currency in blood supply by value overnight.
The federal government that is federal issuing new 500 rupee notes days later on, and included the 2,000 to replenish money in circulation at a faster pace.
Nonetheless, since then, the organization that is financial is mainly focused on printing notes of 500 rupees and below and has printed no brand-name new 2,000-rupee records in the last four years.
Pronab Sen, economist, and chief that is former of India called the withdrawal associated with the higher-value note “a smart kind of demonetization.”
Karthik Srinivasan, Senior Vice President of Financial Sector Ratings at ICRA, said banks’ deposit accretion rates “could improve marginally in the term” that is near.
“This may ease the stress on deposit rate hikes and could cause moderation also in short-term interest levels,” he added.
Indian banks have been reporting credit that is double-digit in recent months, notwithstanding 250 basis points of RBI rate since last May. Banks are raising deposits at a faster pace to satisfy the growing demand and liquidity that is tightening.