RBI OK with Cur­rency in Cir­cu­la­tion

The Economic Times - - Front Page - Gay­athri.Nayak @times­group.com 17.977 15.410

Mumbai: The Re­serve Bank of In­dia said it’s com­fort­able with the cur­rency cur­rently in cir­cu­la­tion, reaf­firm­ing the con­tention that notes won’t get back to pre-de­mon­eti­sa­tion lev­els.

“The cur­rency in cir­cu­la­tion is show­ing early signs of nor­mal­i­sa­tion,” said deputy gov­er­nor Vi­ral Acharya at the post-pol­icy me­dia brief­ing. “There Jul 28, 2017

(` Lakh crore) re­mains how­ever

Source: RBI much sur­plus liq­uid­ity in the sys­tem that the Re­serve Bank has been man­ag­ing,” said Acharya.

To­tal cur­rency in cir­cu­la­tion was .₹ 15.41 lakh crore on July 28, ac­cord­ing to cen­tral bank data, about 86% of the amount on Novem­ber 4 last year. Four days later, the gov­ern­ment had an­nounced the de­ci­sion to pull .₹ 500 and .₹ 1,000 notes out of cir­cu­la­tion to erad­i­cate black money, coun­ter­feits, cor­rup­tion and ter­ror fi­nanc­ing.

“We were clearly re­mon­etis­ing and we had to wait and as­sess when the sys­tem is ac­tu­ally reach­ing a sta­ble level of cur­rency in cir­cu­la­tion,” said Acharya.

“In one way, I think some­thing is sta­ble when it bounces around its level and I think it’s only re­cently that this has started hap­pen­ing. Other­wise we have been re­mon­etis­ing at a cer­tain pace and cur­rency in cir­cu­la­tion has been go­ing up,” said Acharya.

The cur­rency in cir­cu­la­tion now is about 9% of gross do­mes­tic prod­uct, down from more than 12% pre­vi­ously. This typ­i­cally ranges between 5% and 8% of GDP in de­vel­oped na­tions. Lower cur­rency to GDP ra­tio en­sures that cur­rency notes are used pri­mar­ily for trans­ac­tions, since high-value notes tend to be used to pay bribes. It is be­lieved that the lesser the cur­rency in cir­cu­la­tion, the lower the chances of cor­rup­tion.

The pace of re­mon­eti­sa­tion has been slow­ing since June. From more than .₹ 25,000 crore a week un­til mid-May, the growth in cur­rency in cir­cu­la­tion has dipped to less than .₹ 10,000 crore of late.

Econ­o­mists at­tribute this to the cen­tral bank’s fo­cus on print­ing lower de­nom­i­na­tion notes and dis­con­tin­u­ing high-value .₹ 2,000 notes.

“While the sea­son­al­ity every year sug­gests a fall in the pace of weekly CIC (cur­rency in cir­cu­la­tion) around July-Au­gust, the re­cent fall could partly be at­trib­uted to the sup­ply side con­straints given the re­duced print­ing run rate, as RBI has started to print .₹ 200 notes and stopped the print­ing of .₹ 2,000 notes,” Upasana Bharad­waj and Mad­havi Arora of Ko­tak Eco­nomic Re­search said in a note to clients.

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