Aurelia Butler

MUMBAI (Reuters) – India will withdraw its highest denomination currency note from circulation, the central bank said on Friday. The 2000-rupee note, introduced into circulation in 2016, will remain legal tender but citizens have been asked to deposit or exchange these notes by Sept. 30, 2023.The decision is reminiscent of a shock move in 2016 when the Narenda Modi-led government had withdrawn 86% of the economy’s currency in circulation overnight. This time, however, the move is expected to be less disruptive as a lower value of notes is being withdrawn over a longer period of time, according to analysts and economists.WHY DID THE GOVERNMENT WITHDRAW 2000-RUPEE NOTES?When 2000-rupee notes were introduced in 2016 they were intended to replenish the Indian economy’s currency in circulation quickly after demonetisation.However, the central bank has frequently said that it wants to reduce high value notes in circulation and had stopped printing 2000-rupee notes over the past four years. “This denomination is not commonly used for transactions,” the Reserve Bank of India said in its communication while explaining the decision to withdraw these notes.WHY NOW?While the government and the central bank did not specify the reason for the timing of the move, analysts point out that it comes ahead of state and general elections in the country when cash usage typically spikes.”Making such a move ahead of the general elections is a wise decision,” said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings. “People who have been using these notes as a store of value may face inconvenience,” she said.WILL THIS HURT ECONOMIC GROWTH?The value of 2000-rupee notes in circulation is 3.62 trillion Indian rupees ($44.27 billion). This is about 10.8% of the currency in circulation.”This withdrawal will not create any big disruption, as the notes of smaller quantity are available in sufficient quantity,” said Nitsure. “Also in the past 6-7 years, the scope of digital transactions and e-commerce has expanded significantly.”But small businesses and cash-oriented sectors such as agriculture and construction could see inconvenience in the near term, said Yuvika Singhal, economist at QuantEco Research. To the extent that people holding these notes chose to make purchases with them rather than deposit them in bank accounts, there could be some spurt in discretionary purchases such as gold, said Singhal.HOW WILL IT AFFECT BANKS?As the government has asked people to deposit or exchange the notes for smaller denominations by Sept. 30, bank deposits will rise. This comes at a time when deposit growth is lagging bank credit growth.This will ease the pressure on deposit rate hikes, said Karthik Srinivasan, group head – financial sector ratings at rating agency ICRA Ltd. Banking system liquidity will also improve.”Since all the 2000-rupee notes will come back in the banking system, we will see a reduction in cash in circulation and that will in turn help improve banking system liquidity,” said Madhavi Arora, economist at Emkay Global Financial Services.WHAT ARE THE IMPLICATIONS FOR BOND MARKETS?Improved banking system liquidity and an inflow of deposits into banks could mean that short-term interest rates in the market drop as these funds get invested in shorter-term government securities, said Srinivasan.($1 = 81.7800 Indian rupees) More

NEW YORK (Reuters) – U.S. stocks ended lower and the dollar lost ground on Friday as negotiations to raise the U.S. debt ceiling were put on hold, jarring market participants as they headed into the weekend and the United States moved closer to the deadline to avoid default. While all three major U.S. stock indexes ended the session modestly in the red, they all notched gains for the week, which was marked by solid economic data and the tail end of a better-than-expected earnings season.Initial reports that debt ceiling negotiations had reached an impasse rattled markets even as investors were scrutinizing Federal Reserve Chairman Jerome Powell’s remarks in a panel discussion for clues regarding next month’s interest rate decision.”All eyes are on Washington and investors remain focused on the debt ceiling,” said David Carter, investment specialist at JPMorgan (NYSE:JPM) Private Bank in New York. “It’s a bit like watching a nuclear standoff and hoping the other guy isn’t crazy enough to hit the button.”In his remarks, Powell said that uncertainties surrounding the lagging impact of past rate hikes and recent bank credit tightening made it unclear whether more monetary tightening will be necessary.”Investors are trying to better understand if tighter bank lending due to the regional bank crisis will allow the Fed to at least pause on future rate increase,” Carter added. “This is new territory and (it is) not perfectly clear if the Fed will allow tighter bank lending to replace tighter monetary policy.”Adding to market volatility, Treasury Secretary Janet Yellen told bank CEOs that more mergers may be necessary to staunch the banking liquidity crisis, according to CNN.The Dow Jones Industrial Average fell 109.28 points, or 0.33%, to 33,426.63, the S&P 500 lost 6.07 points, or 0.14%, to 4,191.98 and the Nasdaq Composite dropped 30.94 points, or 0.24%, to 12,657.90.European shares closed higher and the German DAX reached a record high as hopes of progress in U.S. debt ceiling talks boosted investor sentiment. Europe’s trading day ended prior to reports that the talks had stalled.The pan-European STOXX 600 index rose 0.66% and MSCI’s gauge of stocks across the globe gained 0.13%.Emerging market stocks lost 0.07%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.18% higher, while Japan’s Nikkei rose 0.77%.The greenback lost ground against a basket of world currencies after Powell’s remarks hinted at a slightly dovish shift, opening the door to the possibility of a rate hike pause at the conclusion of next month’s policy meeting.The dollar index fell 0.35%, with the euro up 0.32% to $1.0803.The Japanese yen strengthened 0.57% versus the greenback to 137.96 per dollar, while sterling was last trading at $1.2446, up 0.31% on the day. Treasury yields wobbled on debt ceiling worries, but resumed their ascent as another Fed rate hike in June remained possible in the wake of solid economic data and Fed officials reiterating this week that inflation remained too high.Benchmark 10-year notes last fell 12/32 in price to yield 3.6937% from 3.648% late on Thursday. The 30-year bond last fell 20/32 in price to yield 3.9383%, from 3.901% late on Thursday.Oil prices edged lower following news that the debt ceiling talks were on pause, raising the possibility of a default that could hit energy demand.U.S. crude dropped by 0.43% to settle at $71.55 per barrel, while Brent settled at $75.58 per barrel, down 0.37% on the day.Gold prices advanced as the dollar dipped on renewed concerns of instability in the banking sector and traders slashed bets on another rate hike following Powell’s remarks. Spot gold added 0.9% to $1,976.04 an ounce. More

Macklem told a seminar hosted by Brazil’s central bank that the Canadian monetary authority has been using a pause in interest rate increases to assess whether policy has been tightened enough to get inflation back to 2%.Canada last hiked rates in January, holding its benchmark rate at 4.5% since then, despite saying it would be ready to hike again if inflation risks remain significantly above target.Macklem also said at the event that he does not expect a recession to happen in Canada, forecasting as a base-case scenario a few quarters of slower but positive growth, even though he acknowledged that risks exist.”So far, Canadians are proving resilient,” the central bank governor said, pointing out that delinquencies on mortgages remain low. More