All cash withdrawal limits to end by 13 March, says RBI

The six-member committee will be meeting on February 7 and 8 and take a call on possible rate cut.

ICICI Bank MD and CEO Chanda Kochhar said the decision to keep the policy rate unchanged and shift in stance from accommodative to neutral is based on a judicious assessment of risks going forward.

On the number of new ₹500 and ₹2,000 notes in circulation, RBI Governor Urjit Patel said: “We usually don’t give that information out”.

Besides, the RBI also surprised Indian stock markets with its hawkish stance, by keeping key interest rates unchanged despite overwhelming expectations of an interest rate cut to at least 25 basis points. “A cut in policy rate, may do more harm than good, if inflation creeps up owing to a rise in global commodity prices”, Relia explains.

“There are more than one channel of global spillovers and then the continued uncertainty of course on a full rollout of USA macroeconomic policies especially on the fiscal side where we still await clarity”. It also shifted to a neutral stance from an accommodative one. “Moreover, the RBI seems to have passed the baton to the government, for bringing down interest rates further from the current levels”.

The reverse repurchase rate automatically remained unchanged at 5.75 per cent.

The demonetisation period ended on December 30, and effective January 1, RBI had progressively raised the cash withdrawal limits at ATMs.

The RBI indicated that it is waiting for more clarity on the inflation trend and the impact of demonetisation on growth. According to CARE Ratings, bank deposit growth during April-January was 12.5%, compared with 8% for the corresponding period a year ago. “As this growth should also add inflationary pressure, the compulsion for the central bank to cut further should be correspondingly diminished”.

According to the report, the market concerns will not be long lasting as demonetisation is likely to have a temporary impact and the government’s fiscal policy remains supportive of growth via higher spending on rural, agriculture and infrastructure sectors. However, price growth is expected to gain momentum, especially as growth picks up and the output gap narrows.

The limits on the cash withdrawals had been announced due to demonetization move by Prime Minister Narendra Modi on 8 November 2016.

However, the RBI projected a 7.4 per cent GVA growth for 2017-18 on the back of higher capital expenditure earmarked in the Union Budget for boosting the rural economy and affordable housing sectors.