India to remove cash withdrawal limits

Mumbai, Feb 8, 2017 — Limits on cash withdrawals will be removed entirely from March 13, India’s central bank said today, as it left interest rates on hold for the second time since a ban on high-value rupee notes.

FILE PHOTO: A cashier displays the new 2000 Indian rupee banknotes inside a bank in Jammu, November 15, 2016. REUTERS/Mukesh Gupta/File photo

The Reserve Bank of India capped cash withdrawals after Prime Minister Narendra Modi’s shock decision in November to take all 500 (US$7.40) and 1,000 rupee notes out of circulation to deter tax-dodging — 86 per cent of the currency in the cash-reliant nation.

The ensuing cash crunch saw long queues outside banks and ATMs, which ran dry within hours and left many without the means to buy food or daily essentials, especially in rural areas.

In a statement, the bank said withdrawal limits would be nearly doubled from 24,000 rupees to 50,000 from February 20 and removed altogether from March 13.

The bank also said it was leaving interest rates unchanged at 6.25 per cent, despite pressure for a cut to stimulate the economy amid fears the cash ban had slowed growth.

“It’s a bit surprising and slightly perplexing that they didn’t do a cut,” said Ashutosh Datar, economist at IIFL Institutional Equities.

“Maybe they could have been a bit more aggressive… their assumption is that the impact of demonetization is transitory but if it isn’t, and if it continues for a few months, that could lead to a sub-seven per cent growth for the first half of next year.”

India’s economy grew by 7.6 per cent in the year to April 2016, but the government has forecast that will slip to around 7.1 per cent in the current financial year.

Last month the government warned that demonetization had hit a host of sectors including real estate and farming, but also said tax revenues could be boosted in the long run.

The cash crunch has also prompted the International Monetary Fund to knock a percentage point off its forecast for India’s economy in the current fiscal year. The new estimate is 6.6 per cent, bringing it below China’s projected rate of 6.7 per cent.

The central bank said the benchmark repo rate — the level at which it lends to commercial banks — would remain steady after being cut to 6.25 per cent in October.