MUMBAI, May 19 (Reuters) – India will start withdrawing its high-denomination currency notes from circulation, the central bank said on Friday.
The withdrawal of the 2,000 rupee ($24.5) notes – which top finance ministry official TV Somanathan said would not disrupt “normal life or the economy” – comes at the end of elections in four major states. year and national voting in the spring of 2024.
Most of India’s political parties are believed to be hoarding cash in high-value bills to fund election campaign expenses to meet strict spending limits imposed by the Election Commission.
The Reserve Bank of India (RBI), which announced the withdrawal, said evidence showed the currency was not commonly used for transactions.
These notes will remain legal tender, but people will use them on Sept. They will be asked to deposit within 30 and convert to smaller denominations.
“The stock of other denominations of currency notes is sufficient to meet the currency demand of the public,” the RBI added in a statement.
The Rs 2000 note was withdrawn from circulation in 2016 after the Narendra Modi-led government suddenly withdrew the Rs 500 and Rs 1000 notes.
There is little evidence that the plan was a success, but the move created a systematic monetary deficit by taking 86% of the economy’s currency by value overnight.
The government started issuing new 500 rupee notes a few days later and added 2,000 to replenish the currency in circulation at a faster pace.
However, since then, the central bank has focused on printing notes of Rs 500 and below and has not printed new Rs 2,000 notes in the last four years.
Economist and former Chief Statistician of India Pronab Sen called the withdrawal of high-value notes a “sensible form of demonetisation”.
Karthik Srinivasan, ICRA’s senior vice-president, financial sector ratings, said banks’ deposit accumulation ratios “may improve marginally in the near term”.
“This will ease upward pressure on deposit rates and lead to moderation in short-term interest rates,” he added.
Indian banks have been recording double-digit credit growth in recent months, despite a 250 basis point hike in RBI interest rates since last May. Banks are rapidly increasing deposits to meet growing demand and tightening liquidity.
($1 = 81.7800 INR)
Statement by Ira Dugal; Editing by Andrew Heavens
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