MUMBAI: During the Monetary Policy Committee (MPC) meeting held on Thursday, August 10, Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), remarked that the decision to withdraw the Rs 2,000 note is a temporary step.

Das further emphasized that there will be an ample supply of liquidity within the system after the completion of the withdrawal process. Earlier this year in May, the RBI had announced its intention to phase out the circulation of Rs 2,000 denomination banknotes, setting a deadline of September 30 for the exchange of all such notes. He described this move as a short-term measure to absorb the excess liquidity resulting from the return of Rs 2,000 notes.

The RBI also divulged that banks will be required to uphold an additional Cash Reserve Ratio (CRR) of 10% on the rise in their Net Demand and Time Liabilities (NDTL) between May 19 and July 28, commencing from the fortnight starting August 12.

CRR signifies the ratio of deposits that banks are mandated to maintain as cash with the central bank. However, these CRR balances held with the RBI do not accrue any interest for the banks.

As per report, up to June 2023, approximately 72% of the withdrawn Rs 2,000 currency notes have been deposited or exchanged at banks. Furthermore, the RBI disclosed on the same day that it has chosen to keep the repo rate steady at 6.5% for the third consecutive time.

"The MPC has chosen to adopt a vigilant approach and assess the evolving circumstances," added Das. The RBI has also opted to sustain its accommodative stance to ensure that the headline inflation remains within the target of 4%.

The repo rate serves as the pivotal policy rate at which the RBI extends lending to banks. It had undergone a 25 basis points (bps) increase in February earlier this year. Subsequently, the central bank upheld the rate during its meetings in April and June.

Das noted, "The cumulative rate hike of 250 bps since FY23 is making its impact felt across the economy." He also highlighted that India's robust macroeconomic fundamentals have resulted in substantial growth, contributing more than 15% to global growth.

RBI MPC Meeting August 2023 - Full Speech by Governor Shaktikanta Das