RBI's move to withdraw Rs 2,000 notes to comfort short term rates

Some amount of buying was observed among those opted to buy gold jewellery with Rs 2000 notes.

The RBI's decision to withdraw the Rs 2,000 note from circulation eased money market rates and led to rally in shorter bonds as investors bet the move could put more liquidity into the system.

Banks are hoping to get some of the money back into the system which is likley to boost liquidity and provide a short term respite in interest rates.

Morgan Stanley expects Rs 1.8 lakh crore of deposits from RBI’s move could help banks.

"It will help banks meet 8% of incremental requirement For FY24."

The measure could provide near-term support to tight deposit conditions, Morgan Stanley said.

“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.”

Some amount of buying was observed among those opted to buy gold jewellery with Rs 2000 notes.

However, the larger window of four months provided by the RBI and strict KYC norms are likely to prevent any panic buying of gold keeping prices in check.

"There have been a lot of inquiries about purchasing gold or silver with Rs 2,000 notes, hence the higher footfalls on Saturday. However, due to strict KYC norms actual purchase has been less,” apex industry body All India Gem And Jewellery Domestic Council (GJC) Chairman Saiyam Mehra told PTI.