Mumbai
RBI has since February 2019 delivered a 135 basis point rate cut in order to revive economic activity which fell to over a six-year low at 5 per cent during the April-June quarter. “The magnitude of the peak effect on output is comparable to a roughly 200 basis point tightening of the monetary policy rate based on the median of estimates reviewed in Ramey (2016) of econometric studies of US data,” the research report said. The Centre’s key argument to justify demonetisation was to reduce the use of cash which makes financial transaction an expensive affair but the report concluded that in modern India cash continues to serve an essential role in facilitating economic activity.
The report measured that the decline in cash lowered the growth rate of economic activity by at least 2 percentage points in the quarter of demonetisation and by 3 percentage points in November and December 2016. “...a sharp, temporary decline in currency caused declines in ATM withdrawals, reduced economic activity, faster adoption of alternative payment technologies, and higher deposit and lower bank credit growth in Indian districts,” the paper said.
However, the report also notes that there may be longer term advantages from demonetisation that arise from improvements in tax collections and in a shift to savings in financial instruments and non-cash payment mechanisms.
Visit news.dtnext.in to explore our interactive epaper!
Download the DT Next app for more exciting features!
Click here for iOS
Click here for Android