Recent Spurt In Fuel Prices May Weigh On Discretionary Spending

There is a possibility that consumers are cutting back discretionary spending with the recent spurt in fuel prices, according to latest edition of Ecowrap from State Bank Of India (SBI). India's currency in circulation (CiC), which increased exponentially after the note ban in November 2016, has seen some slowdown in expansion since May this year likely due to higher fuel prices and Reserve Bank of India's intervention in forex market, says SBI. Currency in circulation increased from Rs 9 trillion in January 2017 to Rs 19.5 trillion as of September 14 this year. But since the beginning of May 2018, the same has been in the range of Rs 19-19.6 trillion, says the Ecowrap. One possible reason can be people may be cutting back discretionary spending with the recent spurt in fuel prices, mostly in rural areas, noted the bank.

The other factor could be to the extent RBI selling dollars directly from its foreign exchange reserves to designated dealers/banks thereby withdrawing rupee resources in return, thus reducing currency in circulation. The decline in CiC is a seasonal phenomenon but this time it seems the decline is more than just seasonal and has continued beyond August.

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