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  1. Demonetisation: Interest rates may fall by 100 bps within 6 months, says Former ICICI Bank Chairman KV Kamath

Demonetisation: Interest rates may fall by 100 bps within 6 months, says Former ICICI Bank Chairman KV Kamath

When asked about the ill effects of demonetisation on GDP, Kamath countered that it is a temporary blip, and reiterated that it would have a long term impact on reduced inflation, reduced interest rates, which are a huge plus.

By: | Published: December 13, 2016 11:11 AM
In the middle of so many takes from all quarters about the effects of demonetisation in India, former ICICI Bank Chairman KV Kamath puts up his view and says it's a 'very brave move' that was required. (Reuters) In the middle of so many takes from all quarters about the effects of demonetisation in India, former ICICI Bank Chairman KV Kamath puts up his view and says it’s a ‘very brave move’ that was required. (Reuters)

Demonetisation: In the middle of so many takes from all quarters about the effects of demonetisation in India, former ICICI Bank Chairman KV Kamath puts up his view and says it’s a ‘very brave move’ that was required and that only a courageous leader could have taken this step – PM Narendra Modi has taken full reponsibility for the success, or failure, of the demonetisation order that he gave on Nov 8. Kamath, being optimistic about the move said in an interview that it is partially deflationary and so it is going to put further pressure on prices to move down, and as inflation goes down, then interest rate too will head south.

When asked about the ill effects of demonetisation on GDP, Kamath countered that it is a temporary blip, and reiterated that it would have a long term impact on reduced inflation, reduced interest rates, which are a huge plus. He is also of the view that interest rates should decline by as much as 100 basis points over a six-month period.

Kamath also said that the flood of liquidity will result in lower rates and that will lead to gains in banks’ bond portfolios running into lakhs of crores of rupees, during an interview to ET NOW. “There was Rs 100,000 crore profit that happened in the last quarter with treasuries moving down by around 70 basis points, this is a number that I have not seen before in my career,” said Kamath.

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He also listed some of the benefits that the currency ban will deliver: a possible windfall of Rs 2.5 lakh crore for the government, lower interest rate regime for a prolonged period, better tax compliance and recapitalization of battered state-run banks.

In further support of the move, Kamath said that ‘Go cashless’ and ‘go digital’ are the two mantras that the government is encouraging people to adopt. That is because digital transactions will help the government to track the flow of funds through big data analytics and which will further help in compressing the amount of currency in circulation substantially. And that the most important issue the demonetisation drive addresses is corruption in the country.

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