MUMBAI: India’s currency in circulation has increased by only around Rs 50,000 crore in the first four months of this financial year that began in April, which is nearly half the pace of the same period a year ago.
“Economic activity is completely back to pre-pandemic levels, and hence there is hardly any need for panic-driven cash withdrawals, which is leading to a drop in cash in circulation,” a trader with a state-run bank said.
The rise in the cash in circulation for April-July stood at Rs 50,800 crore ($6.38 billion), as compared to Rs 92,800 crore for the similar period last year and a mammoth Rs 2.25 lakh crore in 2020-21, the peak of lockdown, data from the Reserve Bank of India showed.
The currency in circulation had jumped by over Rs 4 lakh crore in 2020-21, while the increase tapered to Rs 2.80 lakh crore in the last financial year, and market participants expect another drop in the current year.
“We do not have any major elections in the remaining part of the year and could just have around Rs 2 lakh crore of rise for the full year. The impact on overall surplus may not be large,” a trader with a primary dealership said.
Meanwhile, India’s banking system liquidity surplus remains around Rs 2 lakh crore, and Kotak Mahindra Bank expects the surplus to ease to around Rs 1.50 lakh crore by end of this week.
One-day interbank call money rate was at 4.75%, while the overnight tripartite repo or TREPS rate was at 4.50%.
Traders also await the RBI’s monetary policy decision tomorrow, and apart from a hike in repo rate, any measure or commentary on liquidity management would impact money markets.