India: the rate of increase of Indian currency in circulation is decreasing

India’s currency in circulation grew by only about 500 billion rupees in the first four months of this fiscal year which started in April, nearly half the pace of the same period a year ago.

“Economic activity is fully back to pre-pandemic levels, so there is virtually no need for panic-driven cash withdrawals, leading to less cash in circulation,” said one. merchant of a public bank.

The increase in cash in circulation for April-July amounted to 508 billion rupees ($6.38 billion), compared to 928 billion rupees for the similar period last year and a gigantic 2.25 trillion rupees in 2020-21, the peak of the lockdown, Reserve Bank of India data showed.

Currency in circulation jumped over four trillion rupees in 2020-21, while the increase narrowed to 2.80 trillion rupees in the last fiscal year, and market participants expect a further decline during the current year.

“We don’t have major elections in the remaining part of the year and we might have about two trillion rupees upside for the whole year. The impact on the overall surplus might not be significant,” said a trader with a master dealer.

Meanwhile, excess liquidity in the Indian banking system remains around two trillion rupees, and

expects the surplus to shrink to around 1.5 trillion rupees by the end of this week.

The interbank overnight money rate was 4.75%, while the three-party overnight repo or TREPS rate was 4.50%.

Traders are also awaiting the RBI’s monetary policy decision tomorrow, and apart from a repo rate hike, any action or comment on liquidity management would impact money markets.