DeMo Cassandras Can Relax Now, Cash Crisis Is Officially Over

Demonetisation cassandras including eminent economists who said the cash crisis will only be over in six months can relax now. The Reserve Bank of India’s (RBI) Deputy Governor R. Gandhi in bi-monthly monetary policy statement today announced the bank’s decision to remove all the withdrawal limits from savings bank accounts from 13 March. That means that the central bank has officially declared the cash crisis to be over.

Last month, the central bank had lifted restrictions on withdrawals from ATMs from 1 February. Currently, the weekly withdrawal limit from ATM is Rs 24,000. This will be increased to Rs 50,000 from 20 February.

The State Bank of India (SBI) in its Ecowrap report on 19 December had predicted that by February-end, almost 90 per cent of the note replacement will be complete ending the paucity of cash. This assumption has turned out to be largely true.

The Monetary Policy Committee (MPC) has also decided to keep the repo rate unchanged at 6.25 per cent for the consecutive second time. The committee justified its decision saying that it is “in consonance with the objective of achieving consumer price index (CPI) inflation at 5 percent by fourth quarter of 2016-17 and the medium-term target of 4 percent within a band of +/- 2 per cent, while supporting growth.”

The committee also revised its earlier growth estimate of 7.1 per cent to 6.9 per cent this fiscal which it expects to rebound to 7.4 per cent in the next fiscal.