Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Mark-to-market/  Why is currency with the public rising again?
BackBack

Why is currency with the public rising again?

The growth in currency holdings with the public continues to remain high with the circulation increasing 15.78% in June from 14.87% in the previous month

Cash required for transactions related to purchase of realty and jewellery is large; real estate activity has remained muted for some time now. Photo: Pradeep Gaur/MintPremium
Cash required for transactions related to purchase of realty and jewellery is large; real estate activity has remained muted for some time now. Photo: Pradeep Gaur/Mint

The growth in currency holdings with the public continues to remain high. In June, currency in circulation increased 15.78%, up from 14.87% in the previous month. This growth is higher than that in March and April, when there were heated debates about the sudden spurt in currency in circulation, with most economists putting it down to the state elections. However, there are no elections in the near future, so why is growth in currency with the public accelerating?

A bigger factor than elections could be the trend in demonetization and as a result, people may be using more of high-value currency to purchase safe- haven assets like gold, said State Bank of India (SBI) chief economist Soumya Kanti Ghosh. Another reason could be stringent rules set by the government to curb flow of black money in the system, he added.

Cash required for transactions related to purchase of realty and jewellery is large; real estate activity has remained muted for some time now. Also, the government’s stricter rules for purchase of gold jewellery may be why people haven’t deployed funds and have surplus money in hand, said Devendra Pant, chief economist at India Ratings and Research Pvt. Ltd. As per the new norms, it is mandatory for customers to provide a PAN for all jewellery transactions worth 2 lakh and above.

On a year-on-year basis, according to the Centre for Monitoring Indian Economy Pvt. Ltd, the increase has been 587 basis points. A basis point is one-hundredth of a percentage point. In June 2015, growth in currency in circulation stood at 9.91%.

A reasonable correlation for this annual surge could be a rise in personal expenditure, which has also increased from last year, explained Indranil Pan, chief economist at IDFC Bank Ltd.

Some economists blame lower interest rates for making financial savings less attractive. Apart from that, there is still uncertainty on inflation, which leads households to keep more cash for transactions, said D.R. Dogra, managing director and chief executive of CARE Ratings. Some caution that more money in the hands of people would lead to more demand, pushing up inflation, at least marginally. More money in the hands of the public could also be seen as a sign of the economy gaining steam and people keeping cash in hand to make purchases.

If the trend of higher currency in circulation continues, whatever may be the contributing factors, it will not only hurt the deposit growth of banks, but also make transmission of interest rates difficult.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 08 Jul 2016, 12:21 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App