Mumbai. A new research report, co-written by IMF chief economist Geeta Gopinath, claimed that the demonetization exercise in the fourth quarter of 2016 led to a decline in national economic activity of nearly 2 percentage points and was equivalent to a 200 basis point interest rate hike was.
The Reserve Bank of India has cut 135 basis point rate to revive economic activity from February 2019, which fell to a six-year low of 5 percent during the April-June quarter. The research report states that the magnitude of the peak effect on output is equivalent to the tightening of the monetary policy rate by about 200 basis points based on the average of the estimates reviewed in Remy (2016) of the econometric study of US data.
The Modi government’s main rationale for justifying demonetisation was to reduce the use of cash, which makes financial transactions a costly affair, but the research report has concluded that cash is an essential role in facilitating economic activity in modern India Plays.
