RBI Governor Shaktikanta Das explains why Rs 2,000 notes were withdrawn

RBI Governor Shaktikanta Das

RBI Governor Shaktikanta Das explained the decision to withdraw Rs 2,000 notes stating that the move is part of the central bank's currency management exercise.

Rs 2,000 notes were primarily introduced to quickly replenish earlier Rs 500 and Rs 1,000 notes, Das said. He appealed to the public to not rush to banks to exchange the Rs 2,000 notes. He said the public has time until September 30 for exchange and/or deposit of the Rs 2,000 notes.

"We have given a September 30 deadline for the exchange and deposit of the Rs 2,000 note so that the decision is taken seriously," Das said.

The Governor assured that the impact on the economy on account of the decision to withdraw Rs 2,000 note will be "very very marginal". The Rs 2,000 notes comprised just 10.8% of the total currency in circulation.

He also termed any talk of re-introduction of the Rs 1,000 notes as speculative.

"We have more than adequate quantities of printed notes already available in the system, not just with RBI but with currency chests operated by banks. There is no reason for worry. We have sufficient stocks, no need to worry," Das said underlining the robustness of India's currency management system.

The Reserve Bank of India (RBI) on May 19 announced that it has decided to withdraw the Rs 2,000 denomination bank notes from circulation. However, the apex bank said that the existing Rs 2,000 denomination bank notes will continue to be legal tender.

In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, the exchange of Rs 2,000 notes into notes of other denominations can be made up to a limit of Rs 20,000 at a time at any bank starting from May 23, 2023, the central bank noted.

Economists expect the decision to bolster system liquidity and bring down short-term money market rates which have gone up recently. The short duration bonds rallied on the news.

“We will see the short-end continue to rally as about 1 trillion to 1.5 trillion rupees of liquidity come into the banking system,” a Bloomberg report quoted Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, as saying. “The five-year will probably come down to 6.78%-6.75%.”

“The move to withdraw the note will likely result in a temporary spurt in system liquidity owing to a higher deposit base,” Madhavi Arora, lead economist at Emkay Global Financial Services, wrote in a note.

“We expect the bond curve to steepen in the near term, while forward premium will decrease further, putting pressure on the rupee.”