As the 2,000-rupee banknote withdrawal exercise comes to a close, the currency in circulation has fallen by a significant Rs 1.54 lakh crore as on July, 28. The reduction may not be entirely due to the Rs 2,000 banknote withdrawal as a similar mid-year declining trend has been seen in previous years as well.
However, the quantum of reduction this year is much higher than was seen in previous years, and this can be ascribed primarily to the removal of Rs 2,000 notes from circulation.
Earlier, total currency in circulation had dropped by about Rs 41,000 crore in 2022 between May, 20 and July, 29. Likewise, in 2021, the reduction stood at a marginal Rs 17,000 crore between May, 21 and July, 30.
Hence, the current year's decline of 4.4% during May-July is higher than 2022's 1.2% and 2021's 0.6%.
In absolute numbers, currency in circulation fell from Rs 34.78 lakh crore as on May, 19 when the withdrawal of the country's largest denomination was announced, to Rs 33.24 lakh crore as on July, 28.
Consequently, currency with the public, or cash in circulation excluding cash held by banks, too shrunk by Rs 1.29 lakh crore, from Rs 33.66 lakh crore as on May 5 to Rs 32.36 lakh crore as on July 14, the latest RBI's money stock data published on Friday shows.
Giving a status update, the central bank on Tuesday confirmed that 88% of Rs 2,000 banknotes, worth about Rs 3.14 lakh crore, have been returned and only Rs 0.42 lakh crore worth of the pink notes remain in circulation. The deadline to deposit or exchange Rs 2,000 notes falls on Sep 30 .
Of the Rs 3.14 lakh crore returned, 87% has been deposited with banks, and only 13% has been exchanged into other denominations. Separately, RBI data showed that time deposits with banks increased from Rs 171 lakh crore as on May 5 to Rs 175 lakh crore as on Jul 14.
Meanwhile, the RBI in its monthly bulletin noted that growth in currency in circulation, the largest component of reserve money, moderated to 4.4% year on year from 8% due to the withdrawal of Rs 2,000 notes from circulation.
The central bank attributed the decline in CIC growth to the withdrawal of the 2,000 rupee note.
As on June 30, money supply (M3) growth – which includes bank deposits – was higher at 11.3% (y-o-y) than 8.9% in the corresponding period of last year. Aggregate deposits with banks deposits increased by 12.4%. Reflecting the return of Rs 2,000 notes, the ratio of currency to aggregate deposits declined and correspondingly, the money multiplier increased, the central bank observed.
Besides a visible fall in currency in circulation, banking sector analysts also expected pressure on deposit rates to ease due to the withdrawal of the denomination, following the increase in deposits.