Psychology of Scarcity of Money

 as you have seen from November 2016 the money in circulation have increased from 17 lakh crore rupees to 28 lakhs CRORE RUPEES till April 2021......

because of Corona Virus Pandemic and the government also puts cagr of 9% money supply in the economy by Printing Money...... from Independence..........

but even after infusion of so much money in to the Economy by printing money.......Money in Subjective Terms is Expensive and also the Credit Growth of money given by Bank on loans  from the recent data available is only  5/6%.......

In 2007 period the Same Money was very Cheap and Credit Growth of Loans given by Banks was say around 20/21% at its peak........ even when there wasn't so much money being Printed and thrown in to the economy........

Money becomes Cheap or Expensive as per Beholder Eyes......It is a purely Psychological Play i mean Emotional Play......

When the animal spirits of human beings are High the Value  of money becomes Cheap and Money is freely Sloshing Around and every body has Money to Buy Goods and Services...... People will Save Less and Less and spend more and more without caring about the Future Safety Net......

but when the same Animal Spirit is Dampen the Value of Money becomes very High and Money is hardly rolling in the Economy because no one is Spending because of Uncertainty Ahead....... People will Save More and Spend Less......

now in the Current Scenario of Corona Pandemic and even before that i mean from 2016 onwards so much money was printed and is Sloshing Around in the Economy but hardly any Credit Growth is happening and Credit Growth is running at 50 Years Lowest LEveLs.....

so even after pumping so much money Why the Economy is not running at Full steam because of the CORONA Pandemic and Also for the Reason Psychological Animal Spirit has not been Activated....

Yes a Massive Inflation is going to start hitting us in the Coming Decade and Biggest Growth in Economy is going to come in the Near Future because what is happening right now printing money the Consequences we will 100% have to pay later on in lagging effect.......And inflation will come surely come in the form of Increasing in Assest Prices and Exponential Booming of the Economy......

So even though so much money has been printed it should be the Case that the Value of Money should Decrease but it is not happening because people are scared in fear of Spending and the only thing in their mind is to save Money.......

So more money you save and spend Less and print Less the Value of Money is High.........And of any of the above criteria is Broken eventually after a Lag Period the Excesses will Show Up and the Results will Start Vomiting because of those Excesses Done.........

 

Currency In Circulation Rises Rs 3.23 Lakh Crore In First Nine Months Of FY21

PTI

@PTI_News

 Jan 10 2021, 4:35 PM IST Jan 10 2021, 6:12 PM IST

The currency in circulation rose in the country in the first nine months of the ongoing fiscal as people preferred holding on to cash as a precautionary measure amid the uncertainty caused due to the Covid-19 pandemic.

The currency in circulation rose in the country in the first nine months of the ongoing fiscal as people preferred holding on to cash as a precautionary measure amid the uncertainty caused due to the Covid-19 pandemic.

Currency in circulation grew by 13.2% to Rs 27.7 lakh crore as on Jan. 1, 2021, from March 31, a year ago, according to recent data released by the Reserve Bank of India.

In the April-December period of FY2020, it had grown by nearly 6%.

Madan Sabnavis, chief economist at Care Ratings, attributed the trend to people accumulating more cash to meet any exigency during the pandemic-induced lockdown.

“Whenever there is a crisis-like situation, there is a tendency for households to latch on to cash,” he said. “That is the reason there has been an increase in demand for cash. What you see is nothing else but a precautionary motive overwhelming everything.”

The RBI in its annual report for 2019-20, released in August 2020, had also mentioned that demand for currency started to increase in the wake of heightened uncertainty caused by the pandemic.

The central bank also took a series of measures in order to meet the enhanced demand.

Currency in circulation in 2020 grew 22.1%, or Rs 5.01 lakh crore, to Rs 27.7 lakh crore as on January 1, 2021.

Currency in circulation includes banknotes and coins. At present, RBI issues notes in denominations of Rs 2, Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 200, Rs 500 and Rs 2,000.

Coins in circulation comprise those of 50 paise and Re 1, Rs 2, Rs 5, Rs 10 denominations, and the recently launched coin of Rs 20 denomination.

As per RBI’s annual report, the value and volume of banknotes in circulation increased 14.7% and 6.6%, respectively, in FY20.

In value terms, Rs 500 and Rs 2,000 banknotes together accounted for 83.4% of the total value of banknotes in circulation at end-March 2020, with a sharp increase in the share of Rs 500 banknotes, it had said.

In volume terms, Rs 10 and Rs 100 banknotes constituted 43.4% of the total banknotes in circulation at end-March 2020, RBI had said in the annual Report

 

Currency in circulation as share of GDP in India FY 2015-2020

Published by Statista Research Department, Apr 6, 2021

 In fiscal year 2020, the share of currency in circulation (CIC) to the gross domestic product in India was around twelve percent. Since the demonetization in 2017, the CIC-ratio had considerably grown again.

India witnessed high ratios of CIC to GDP in times of high economical growth. This time, the CIC-ratio is expected to grow during financial year 2021, despite the recession caused by the coronavirus (COVID-19) pandemic and a likewise rise in digital payments.

Share of currency in circulation as a share of GDP in India from financial year 2015 to 2020

FY 2020	12%
FY 2019	11.2%
FY 2018	10.7%
FY 2017	8.7%
FY 2016	12.1%
FY 2015	11.6%

	Share of CIC as part of GDP
FY 2020	12%
FY 2019	11.2%
FY 2018	10.7%
FY 2017	8.7%
FY 2016	12.1%
FY 2015

 

What slow credit growth says about economic recovery

The trend in credit and deposit growth rates

As per the Financial Stability Report of January 2021, year-on-year (y-o-y) credit growth of scheduled commercial banks was slowing down even before the pandemic. Credit growth rate in March 2020 was at 5.7%, which fell further to 5.0% by September 2020. On the other hand, deposit growth remained healthy at 10.3%, thanks to precautionary savings by people influenced by the virus-induced uncertainty. With signs of a probable V-shaped recovery, credit growth in the second quarter of FY21 did see an uptick at 6.2%; however, with the onslaught of the second wave, things might take another gloomy turn.

 

Cash in circulation is now at a two-decade high

The total currency in circulation, adjusting for the size of the Indian economy, reached a two-decade high in March 2021.

The total currency in circulation or the cash in the system was at ₹28.6 trillion as of March end, an increase of 16.8% from the year earlier.

 

10 banks offering higher interest rate on savings account compared to bank fixed deposits

Digital account opening is the way forward for banking, and it is allowing Indians in deep geographies to instantly open accounts by authenticating themselves with Aadhaar and PAN.

• By: Sunil Dhawan
• Updated: April 26, 2021 12:38 PM
• Most leading banks such as SBI, ICICI Bank and HDFC Bank are offering a low rate of interest on their saving account compared to the rates offered by Small Finance Banks. Irrespective of the amount SBI offers 2.7 per cent per annum to their savings bank account holders. And, both ICICI Bank and HDFC bank offer 3 per cent per annum on deposits up to Rs 50 lakh on the deposits in a savings account.

The interest rate on saving account is higher in Small Finance Banks compared to interest rates offered by most of the leading banks on their fixed deposit across tenures. However, the higher rate of interest may be applicable only on savings account deposits above a certain amount. “You can get rates up to 5% on balances under Rs. 1 lakh with some small finance banks, and up to 7.25% on eligible balances above Rs. 1 lakh,” says Adhil Shetty, CEO, BankBazaar.com

The savings account interest rate of Small Finance Banks on certain deposits is even higher than FD interest rate of the leading banks. The rate of interest on SBI fixed deposits range between 5 per cent and 5.4 per cent per annum for tenure between 1 year and 10 years. ICICI Bank and HDFC Bank are also offering FDs with an interest rate of around 5-5.5 per cent.

So, if you are looking to park money in a saving account and yet earn a higher yield, Small Finance Banks can be an alternative to explore. Till the FD rates move up, parking funds in the saving account of these banks earn you a higher return than FD.

Opening a savings account with any bank has become much easier and simpler than before. One may open a savings account even without visiting a bank branch. All the KYC formalities can be done online and the savings account can be opened instantly. “Digital account openings is the way forward for banking, and it is allowing Indians in deep geographies to instantly open accounts by digitally authenticating themselves with Aadhaar and PAN. However, such accounts have safeguards and restrictions, and therefore a full KYC will need to be completed to lift the restrictions on deposits and withdrawals,” says Shetty.

But, many depositors often ask about the safety of money in the small finance banks and whether the DICGC limit also applies to them. “Depositor money at all commercial banks is insured by DICGC to the limit of Rs. 5 lakh per customer per bank. The Indian banking ecosystem has several checks and balances to protect depositors and their funds. The RBI will safeguard depositors. However, access to funds may become a challenge if any bank undergoes a moratorium during which access to funds is restricted. Therefore, savings should also be diversified. You can park your funds in multiple banks including small finance banks as per your returns expectations,” says Shetty.

SBI cuts growth forecast to 10.4% on rising lockdowns

SBI cuts growth forecast to 10.4% on rising lockdowns

NEW DELHI: State Bank of India Research cut India’s growth forecast to 10.4 per cent for FY22 from 11 per cent projected earlier on account of rising Covid-19 infections and increasing restrictions across the country.

India Ratings said the second wave of the pandemic and the slow pace of vaccinations would shave off 30 basis points from India’s GDP expansion in FY22 and revised its growth projection to 10.1 per cent for the current financial year from 10.4 per cent forecast earlier.

The revision assumes the second wave of Covid-19 will start subsiding mid-May onwards, India Ratings said in a note released on Friday.

The second wave of Covid-19 infections will be less disruptive than the first wave, despite the caseload per day reaching more than three times the peak level attained during the first wave,” it said.

While various leading economic indicators showed improvement in March, the SBI business activity index dropped to a five-month low of 86.3 in the week ended April 19.

SBI Research said in a report on Friday that ramping up vaccination efforts rather than imposing lockdowns would be the preferred way to thwart the resurgence of cases in India.

The third wave peak in the US and Japan turned out to be worse than the second wave, SBI Research said, adding, “We as a country cannot afford any third wave.”

“India must vaccinate its population with the single-minded focus to achieve herd immunity and avoid any further waves,” Soumya Kanti Ghosh, group chief economic advisor at SBI, said in the report.

It pegged the cost of vaccinating half the population of 13 major states at about 0.1 per cent of GDP. This, it said, was significantly lower than the 0.7 per cent of GDP, or 1.5 lakh crore, of the economic loss estimated due to existing restrictions.

Fed Chair Powell says won't allow 'substantial' overshoot of inflation target

The US economy is going to temporarily see "a little higher" inflation this year as the economy strengthens and supply constraints push up prices in some sectors, but the Federal Reserve is committed to keeping any overshoot within limits, Fed Chair Jerome Powell said in an April 8 letter.

"We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period," Powell told Senator Rick Scott in a five-page letter responding to a March 24 letter from the Florida Republican raising concerns about rising inflation and the Fed's bond buying program. "I would emphasize, though, that we are fully committed to both legs of our dual mandate - maximum employment and stable prices."

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Scott, while not on the Senate Banking Committee that directly oversees the Fed, nonetheless has been a vocal critic of Powell. He has warned that the Fed's low interest rates and bond-buying program will force prices higher, hurting families and businesses.

His office provided Powell's letter to Reuters, and suggested the response did not allay the senator's concerns.

The data is clear that inflation is rising, and Chair Powell continues to ignore this growing problem," Scott's office told Reuters in the email. "Senator Scott remains concerned about the impact inflation will have on low and fixed-income American families, like his growing up. He is calling on Chair Powell to wake up to this threat, lay out a clear plan to address rising inflation and protect American families."

Powell in his letter said that low inflation constrains the Fed's ability to offset economic shocks with easy policy, and that after a decade of too-low inflation, the Fed is now aiming for inflation moderately above 2%.

We understand well the lessons of the high inflation experience in the 1960s and 1970s, and the burdens that experience created for all Americans," Powell said in the letter. "We do not anticipate inflation pressures of that type, but we have the tools to address such pressures if they do arise."

 

If inflation remains strong, RBI will have to choose — debt or inflation management

If the RBI is too slow to tighten policy and rein in the liquidity it has created, the country could end up facing the kind of inflation crisis that was witnessed in the post-2008 period.

• Written By Rajeswari Sengupta |
• Updated: April 20, 2021 8:31:02 am

A pedestrian walks past the Reserve Bank of India (RBI) building in Mumbai

The Union government has recently announced that India’s monetary policy will continue to be guided by the inflation targeting framework for the next five years. This decision firmly establishes the mandate of RBI as an inflation-targeting central bank — at least on paper. In reality, the RBI’s priorities are not so clear. At some points, it seemed to target growth; at others, the exchange rate. More recently, it seems to be focusing on yields in the government bond market. These shifting priorities raise some questions: Are multiple and changing objectives compatible with the inflation targeting framework? Will pursuit of such a flexible strategy help the recovery or hinder it?

Consider the RBI’s attempts to control interest rates on government securities (G-secs). For some time, the central bank has made it clear to market participants that it would like to keep the 10-year rate around 6 per cent. When market participants pressed for higher rates, it repeatedly stepped into the bond markets, purchasing several trillion rupees of G-secs in the second half of 2020-21. Most recently, on April 7, it went one step further, announcing a plan to buy Rs 1 trillion worth of government securities in the first quarter of 2021-22. For the first time the RBI has committed itself to buying a specific quantum of G-secs over a specified period of time. What is distinctive about this Open Market Operation (OMO) plan is its aggressiveness, not only because it is large but also because it is an iron-clad commitment, invariant to future inflation or growth developments. And like all aggressive strategies, this one is not without risk.

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There are three ways the OMO commitment can go wrong. First, it may not succeed in keeping a lid on G-sec rates. It does nothing to address the underlying reasons why bond investors are demanding higher interest rates: A large fiscal deficit leading to massive borrowing by the government in the bond market, and high and rising inflation. Market participants may also remain reluctant to purchase bonds at current interest rates. They may instead wait until the RBI has purchased its Rs 1 trillion, in the hope that afterwards rates will rise to more remunerative levels. By revealing the exact plan in advance, the RBI may have imposed limitations on the success of the programme.

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Second, even if the strategy works in containing G-sec yields, this success may create collateral damage. In the short run, it could adversely affect interest rates for the private sector. If banks find they are not making adequate returns on their (very large) investments in G-secs, they will try to compensate by charging more on credit to the private sector. In this case, the plan would end up hindering the economic recovery.

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There could be further collateral damage over the longer-term. One of the key benefits of a bond market is to impose fiscal discipline on governments, by forcing them to pay higher interest rates when government borrowing increases. Persistent intervention by the RBI would disrupt this process, increasing the risk that large fiscal deficits will persist.

Third, and perhaps most importantly, the plan may jeopardise the achievement of the inflation target. For the past year, the RBI has been injecting copious amounts of liquidity into the banking system, confident that this would not lead to an inflation problem. Even when inflation did rise above its central 4 per cent target, it argued that the problem was temporary and would disappear as soon as lockdowns eased and supply returned to normal.

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In effect, the RBI has placed a large bet on the future of the economy. If inflation does collapse, then market interest rates will naturally fall, and the conflict between the two objectives will vanish. But if inflation remains strong, then the RBI will soon have to choose its priority. Either way there will be a problem. If it fails to fulfil its commitment and prematurely ends the liquidity injection, it could lose the confidence of the bond market for a long period of time. If, on the other hand, it goes ahead with its OMO plan — injecting Rs 1 trillion despite rising inflation — its credibility as an inflation-targeting central bank will be called into question.

What are the chances that the bet will come right? An inflation collapse cannot be ruled out. But so far developments are not encouraging. Inflation has stubbornly refused to dissipate. It has remained well above the 4 percent target. Forward-looking measures such as core inflation remain in the 5-6 per cent range, while fuel and commodity prices have been going up and are likely to firm further as more and more countries recover from the pandemic-triggered crisis. In India, several major states are experiencing a resurgence of COVID cases. To deal with this new wave, state governments have announced measures that will curb the mobility of goods and people. Like last year, these measures will lead to supply chain disruptions which will aggravate the inflationary pressures. RBI’s attempt to lower the interest rates can also lead to a depreciation of the rupee which may further add fuel to inflation by raising the import bill.

If the RBI is too slow to tighten policy and rein in the liquidity it has created, the country could end up facing the kind of inflation crisis that was witnessed in the post-2008 period. And we have seen how that movie ends — not just for interest rates, but also for growth and all the hopes that go along with it.

With a national election not too far away, that may not be a desirable outcome given that inflation has a greater political cost compared to other macroeconomic indicators.