Stable cash flow by March-end: Nomura

Mumbai: The currency is circulation is rising in India post remonetisation and at the current pace of supply, Japanese financial services major Nomura said the currency to GDP ratio would reach 9 per cent by the end of March, which is sufficient enough to stabilise economic activities.

From a peak of 11.8 per cent of GDP on November 4, currency in circulation dropped to an all-time low of 5.9 per cent on January 6 after the government surprised the country with a sudden ban on high denomination currency notes in November 2016. As on January 20, the currency in circulation as a percentage of GDP has risen to 6.5 per cent.

“This suggests that remonetisation is progressing well, as deposits of old notes into banks (currency outflow) has stopped while the Reserve Bank of India is printing new notes (currency inflow) for circulation. At the current pace, we believe the currency-to-GDP ratio will rise to 9 per cent by end-March. In our view, this will be sufficient to stabilise activity since some part of the earlier cash was hoarded and partly due to a larger digital footprint,” analysts at Nomura pointed out.

Nomura reiterated its earlier view that the negative impact of demonetisation on economic growth will be transitory and the economy would see a ‘V’ shaped recovery during the second half of this year.

This according to it would be on the back of the release of pent-up demand post remonetisation, wealth redistribution and lower lending rates.