Urjit Patel denies demonetisation was haste decision

Mumbai: The demonetisation decision was taken after detailed deliberations and not in haste, while nearly Rs 11.85 lakh crore or 80 per cent of junked notes have come back into the system, RBI today said promising to maintain steady supply of new currency to ease cash crunch.

"The decision was not and has not been taken in haste but after detailed deliberations," said RBI Governor Urjit Patel. "The consequences that have emanated from that were taken on board.

That is why the planning, the process and implementation was what it was, keeping in mind high secrecy had to be maintained. The central bank and the government were conscious of certain immediate difficulties for the public at large and all efforts were made to mitigate them," he added.

After the 5th Bi-monthly monetary policy review, Patel told the media that the problems of the common person were at "the top of our radar" and all dispensation were put into the place so "that period for disruption is minimal while we recalibrate our note supply to the denomination that were not withdrawn in terms of legal tender character".

RBI Deputy Governor R Gandhi said that almost Rs 11.85 lakh crore in the scrapped Rs 500/1000 notes have come back to the banking system. Government had announced that the old Rs 500/1000 notes will no longer be legal tender from November 9.

Public has been given time to exchange/withdraw the notes by December 30. Gandhi further said printing presses of RBI and the government are working to full capacity and all efforts are being made to reach the notes in every part of the country.

"In fact, during this period that is from November 10 to December 5, the RBI supplied to the public banknotes of various denominations near about Rs 4 lakh crore.

"As regards lower denomination of notes, the RBI through its counters and bank branches have supplied 19.1 billion (pieces) in this period which is more than what RBI had supplied to the public in whole of last three years," he said.

Patel said presses have been recalibrated in the past two weeks to print more of new Rs 500 and Rs 100 notes. RBI also urged the public not to hoard the new currency and put it into circulation to ease the situation.

"Large quantity of notes of various denomination have already been supplied... I appeal to the public that they may not worry about availability. It is continuously coming. If they freely re-circulate the notes...this problem will not be there," Gandhi said, adding that "hoarding of notes helps nobody's cause".

On price situation, RBI said retail inflation measured by the headline Consumer Price Index (CPI) eased more than expected for the third consecutive month in October, driven

down by a sharper than "anticipated deflation" in the prices of vegetables.

The liquidity conditions have undergone large shifts in third quarter so far, it said. Surplus conditions in October and early November were overwhelmed by the impact of the withdrawal of old high denominations notes from November 9.

"Currency in circulation plunged by Rs 7.4 trillion up to December 2; consequently, net of replacements, deposits surged into the banking system, leading to a massive increase in its excess reserves," RBI said.

The six-member MPC took note of the upturn in the prices of several items that is masked by the easing of inflation on base effects during October in its policy decision.

"Despite some supply disruptions, the abrupt compression of demand in November due to the withdrawal of SBNs could push down the prices of perishables in the reading that becomes available in December," RBI said.

On the other hand, prices of wheat, gram and sugar have been firming up. "While discretionary spending on goods and services in the CPI excluding food and fuel  constituting 16 per cent of the CPI basket  could have been affected by restricted access to cash, the prices of these items may weather these transitory effects as they are normally revised according to pre-set cycles," it added.

RBI said prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education  together accounting for 38 per cent of the CPI basket  may remain largely unaffected.

"Going forward, base effects are expected to reverse and turn unfavourable in December and February. If the usual winter moderation in food prices does not materialise due to the disruptions, food inflation pressures could re-emerge," the RBI monetary policy review added.