Demonetisation impacted economy, but adverse effect short-lived: RBI

By: | Updated: March 10, 2017 10:46 PM

In an announcement made today, by the Reserve Bank of India (RBI) on the effects of demonetisation on the Indian financial system in the wake of the order of Prime Minister Narendra Modi that banned the Rs 500 and Rs 1000 currency notes in an effort to stamp out black money in the country, stop terror funding and also move India to a less-cash status, the central bank indicated that the move actually impacted the system.

In a late night development, the RBI, led by Governor Urjit Patel, in a statement said that the not ban move impacted various sectors of the economy; but adverse impact was short-lived and felt mainly in November-December period. (Reuters)

In an announcement made today, by the Reserve Bank of India (RBI) on the effects of demonetisation on the Indian financial system in the wake of the order of Prime Minister Narendra Modi that banned the Rs 500 and Rs 1000 currency notes in an effort to stamp out black money in the country, stop terror funding and also move India to a less-cash status, the central bank indicated that the move actually impacted the system. The RBI has kept its reactions on the system to a minimum till now and this announcement has come as a surprise. In a late night development, the RBI, led by Governor Urjit Patel, in a statement said that the note ban move impacted various sectors of the economy; but adverse impact was short-lived and felt mainly in November-December period.

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Saying that the shock to the system was quite light and that too fleeting, RBI says impact of demonetisation dissipated by and large by mid-February due to accelerated pace of remonetisation that it carried out in emergency conditions.

Highlighting the positive derived from the move, the central bank in its assessment said that significant improvement in use of digital payments post-demonetisation has happened, but the base is still small.

In the wake of the note ban order by PM Modi on November 8 last a huge currency shortage had made the public across India line up in front of banks and ATMs as currency that was most in use suddenly disappeared. During the period, digital payments had also spiked as the mobile wallets and other online digital payment purveyors reaped a windfall. According to experts this move had hit the economy, with even employees at the lowest rungs feeling the negative impact the most as well as the elderly who were not able to get onto digital platforms in a hurry. However, the latest GDP figures showed that that was not the case and the outlook now is for the Indian economy to maintain a 7.1% economic growth rate.

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