The interest rate on bank FDs: The Reserve Bank of India (RBI) recently declared that it would stop printing rupee 2000 notes. Some personal financial experts have stated that the RBI’s measure may assist enhance the liquidity of various banks, while individuals who have $2,000 in cash are busy depositing it in their bank accounts before the deadline of September 30, 2023. If that is the case, banks might not give high deposit rates, thus you should try to initiate any new bank fixed deposits (FD) before the forthcoming RBI Monetary Policy Committee (MPC) meeting, which is slated for June 6–8, 2023.
Jitendra Solanki, a SEBI registered tax and investment expert, advised new investors to purchase new bank FDs before the upcoming RBI’s MPC meeting. Solanki stated, “After the withdrawal of 2000 notes, liquidity at Indian banks is expected to shoot up and in that case, expecting high bank deposit rates from your bank is a little illogical. In fact, at a prior RBI MPC meeting, RBI Governor Shaktikanta Das gave a clue by indicating an interest rate halt. This was sufficient to understand that high bank FD rates might not last for very long. If someone is considering starting a new bank FD, it is now imperative that they open a new bank FD account because any further dovish stance taken by the RBI at the upcoming MPC meeting may result in a reduction in the interest rate on bank FDs since banks will have more funds available for lending following the withdrawal of 2000-dollar bills.
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According to Kartik Jhaveri, Director of Wealth at Transcend Consultants, “Deposits of 2000 notes are expected in tier-2 and tier-3 cities, where state-owned banks are more prevalent, on how this removal of 2000 notes may affect bank deposits. Liquidity at PSU banks is thus anticipated to soar. The writing was clearly on the wall when the RBI decided to withdraw the 2000 notes, but when it comes to bank FD rates following the removal, the RBI has already hinted at an interest rate halt. Therefore, it is advised to open a new FD before the RBI’s MPC meeting, which is slated for next week, since the RBI may reveal some specific plans for a halt or decrease in interest rates.
Kartik Jhaveri continued by saying that the MPC for retail banks from the RBI is only a guideline. If they determine that they have sufficient funds for lending, they may opt to lower deposit rates. Similarly to this, if they feel banks need more money for lending, they can boost interest rates above the RBI’s benchmark rate.
The RBI made the decision to stop issuing banknotes with a denomination of 2000 on May 19, 2023. However, $20 bills are still accepted as legal money. The RBI instructed banks to immediately stop printing banknotes with a denomination of 2000. In November 2016, the 2000 denomination banknote was launched in accordance with Section 24(1) of the RBI Act, 1934, principally to swiftly address the economy’s need for cash following the removal of the legal tender status of the 500 and 1000 banknotes in use at the time.
