I don’t believe people are still quoting this as a reason for the deposit slowdown.
Growth in bank deposits has been slow because RBI wants it to be slow.
That explanation doesn’t wash. After all, if the asset buyer’s bank balance is debited to pay for securities, the seller’s account is credited. The pie may get redistributed among lenders, and its composition may change. Still, money won’t leave the system, except at ATMs, and the use of cash in transactions is slowing.
In India, due to double-digit nominal GDP growth, the money supply must also grow at a corresponding pace, often in double-digits; if the growth in money supply fails to match this pace, it can lead to tightening financial conditions.” The term tightening financial conditions basically refers to the slowdown in deposit growth. So, why is RBI not creating money at as fast a pace as it was in the past? The answer might lie in the high inflation, which the central bank has been struggling to manage.
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