Latest RBI paper says impact of demonetisation short lived
MUMBAI: The adverse impact of demonetisation was short lived and remonetisation is helping the economy recover quickly in the fourth quarter, a research paper from the monetary policy department of the RBI said.
In a 59 page report on its website the paper acknowledged that demonetisation has had a negaitve macro economic impact but said it has been transient in nature, reiterating the RBI governor's comments in the first monetary policy after demonetisation in December.
A positive fallout is the surge in digitisation of transactions, it said. While adding that the analysis is based on currently available data and a detailed examination would be available later.
"In particular, there is expected to be greater formalisation of the economy with increased use of digital payments. The reduced use of cash will also lead to greater intermediation by the formal financial sector of the economy, which should, inter alia, help improve monetary transmission," the research paper said.
The paper came with a caveat that it was not the official view of the RBI. The central bank is yet to release figures of the total amount of money that it collected during the two month period.
Prime Minister Narendra Modi announced the sudden withdrawl for high value Rs 500 and Rs 1000 notes on November 8 as a means to eradicate black money and corruption. The government withdrew Rs 15.44 lakh crore of these high value notes, which were then making up 80% of the notes in circulation.
The total value of notes in circulation before the demonetisation was Rs 17.97 lakh crore it has since come down to Rs 11.73 lakh crore, minister of state for finance Arjun Ram Meghwal said in a written reply to Lok Sabha today.
The resultant withdrawal of currency has impacted consumer confidence and trade especially for small enterprises.
However, the RBI paper said the adverse impact of the move will be short lived. "With remonetisation progressing at a fast pace, the adverse impact is expected to have reversed from the latter part of Q4 of 2016- 17. GVA growth is estimated to recover significantly in 2017-18," the paper said.
However, the post demonetisation analysis is only preliminary, RBI said. "Given the partial information that is available post demonetisation so far, the analysis, especially of growth, is only preliminary in nature. It should, therefore, be possible to make an analysis in greater detail as more data becomes available in the coming months,"" the paper said.
In a 59 page report on its website the paper acknowledged that demonetisation has had a negaitve macro economic impact but said it has been transient in nature, reiterating the RBI governor's comments in the first monetary policy after demonetisation in December.
A positive fallout is the surge in digitisation of transactions, it said. While adding that the analysis is based on currently available data and a detailed examination would be available later.
"In particular, there is expected to be greater formalisation of the economy with increased use of digital payments. The reduced use of cash will also lead to greater intermediation by the formal financial sector of the economy, which should, inter alia, help improve monetary transmission," the research paper said.
The paper came with a caveat that it was not the official view of the RBI. The central bank is yet to release figures of the total amount of money that it collected during the two month period.
Prime Minister Narendra Modi announced the sudden withdrawl for high value Rs 500 and Rs 1000 notes on November 8 as a means to eradicate black money and corruption. The government withdrew Rs 15.44 lakh crore of these high value notes, which were then making up 80% of the notes in circulation.
The total value of notes in circulation before the demonetisation was Rs 17.97 lakh crore it has since come down to Rs 11.73 lakh crore, minister of state for finance Arjun Ram Meghwal said in a written reply to Lok Sabha today.
The resultant withdrawal of currency has impacted consumer confidence and trade especially for small enterprises.
However, the RBI paper said the adverse impact of the move will be short lived. "With remonetisation progressing at a fast pace, the adverse impact is expected to have reversed from the latter part of Q4 of 2016- 17. GVA growth is estimated to recover significantly in 2017-18," the paper said.
However, the post demonetisation analysis is only preliminary, RBI said. "Given the partial information that is available post demonetisation so far, the analysis, especially of growth, is only preliminary in nature. It should, therefore, be possible to make an analysis in greater detail as more data becomes available in the coming months,"" the paper said.
