Interest rates could decline by 1 percentage point in the next six months due to demonetisation of R500 and R1,000 notes, which would flood banking sector with excess liquidity, said New Development Bank (NDB) president K V Kamath.
“Good monsoon, inflation coming down, there has been a 70-basis point reduction in headline interest rates (in the last quarter) and with this (demonetisation), we would see a further drop in interest rates between now and say, 3-6 months, of another percentage point,” he said.
Supporting demonetisation, which would result in withdrawal 86% of high value notes in value terms from market and check black money, Kamath said this would have a salutory effect on interest rates in the medium term.
According SBI Research, the banking sector could see deposits accumulation of about R5 lakh crore as people queue up to deposit old notes in banks.
The NDB chief said the move would suck out liquidity from the system which should have another positive impact on inflation.