RBI's Calibrated Exit of Rs 2,000 Notes Improves Liquidity and Eases Short-Term Rates, Analysts Say.

The Reserve Bank of India's decision to withdraw its highest denomination currency note from circulation is expected to improve banking system liquidity, bringing down recently elevated short-term rates, according to analysts and bankers. The value of such notes in circulation is INR 3.6tn ($44.02bn). Kotak Institutional Equities estimates that liquidity could improve by around INR 1tn, while QuantEco Research pegs the potential liquidity impact at INR 400bn to INR 1.1tn. Most economists expect the note withdrawal to be less disruptive for the economy than the 2016 demonetisation.