Currency reform in India has led to a collapse in bond
Indian bonds and banking stocks showed a drop, after the Reserve Bank of India has ordered local banks to increase the amount of funds on deposit at the regulator to absorb excess liquidity, which was caused by a ban on high-denomination banknotes.
The yield on 10-year bonds rose 15 basis points, while the overnight deposit rate increased from 5.9% on Friday to 14.4%.According to traders, the Indian Central Bank was forced to act after Prime Minister Narendra Modi on November 8 decided to withdraw from the cash circulation banknotes in denominations of 500 and 1 thousand Rs., Which caused shock and splash of old banknotes deposits in Indian banks.
Lenders, in turn, began to invest the money in government bonds, sparking a rally in the debt markets. Analysts have warned that it will not last long, as people have begun to actively withdraw money from bank accounts due to lower rate of national currency in emerging market countries currency.
Analysts also noted that the Reserve Bank of India had to start acting because government bonds, which the regulator has to offer as collateral under the repurchase agreement to the contrary, are not infinite. At this step the Indian Central Bank went to check the operation, in which the authorities intend to withdraw from circulation about 86% of cash flow.
Reserve Bank of India also announced a series of measures aimed at reducing the negative cash from reform. However, analysts believe that the central bank should be better more effectively plan their moves, and not to act on the situation. RBI had earlier stated that banks should pass 100% of the contributions that were made in the period between 16 September and 11 November. The regulator pointed out that this is a temporary measure that can revise until December 9th.
According to Reuters Estimates. such a move by the Indian Central Bank will deprive banks of about 3.25 trillion rupees ($ 47.29 billion).
Recall that in India in early November, the banks lined up a long queue of people who want to exchange the old money for new. The Government has decided on the withdrawal from circulation of large bills, which led to panic among the population
Bloomberg experts said that Asia's third largest economy is on the verge of collapse after an unexpected decision for the withdrawal from circulation of cash large bills. The inhabitants of the country have about two months to exchange the banknotes of 500 and 1 thousand. Rupees on a new sample banknotes.
In India, for this turn of events could not have been willing to banking institutions, ATMs, and the population. Financial institutions are overloaded due to the influx of visitors. In this case, withdrawal limit was originally set at 10 rupees per person per week, for an exchange -. 4 thousand rupees..
Now the limit is increased to 24 thousand. And 4.5 thousand. Rupees respectively, but the wave of popular anger is not reduced, because many ATMs do not work simply because they have not yet adapted to the issuance of new notes. The population of just in a panic continues to buy everything: the rich - expensive watches and gold, and the poor spend cash on items that somehow get rid of savings.
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