Rs. 2,000 Note Withdrawal to Improve Liquidity, Ease Short-Term Rates: Experts

The Reserve Bank of India (RBI) has decided to withdraw its highest denomination currency note from circulation, which is expected to have positive effects on the banking system. Analysts and bankers believe that this move will improve liquidity and reduce short-term interest rates. The RBI will begin withdrawing 2,000-rupee notes from circulation, but they will still be considered legal tender. Individuals holding these notes can either deposit them or exchange them for smaller denominations by September 30, 2023. The total value of these notes currently in circulation is 3.6 trillion rupees ($44.02 billion), but not all of this amount will be deposited in banks. Estimates suggest that liquidity could improve by around 1 trillion rupees, depending on the depositors' behavior. However, different research firms provide varying projections, with potential liquidity impacts ranging from 400 billion rupees to 1.1 trillion rupees.