It is amazing to read the recently released minutes of the MPC meeting released yesterday. The meeting was held on 7th Dec 2016.
Leave questioning the modality of the move, not one member cautioned against any longer term negative outcome of the move.
The first mention of demonetisation or currency withdrawal is mentioned in para 11 which is point no 4 in assessment!
11. Turning to Q3, the Committee felt that the assessment is clouded by the still unfolding effects of the withdrawal of specified bank notes (SBNs). The steady expansion in acreage under rabi sowing across major crops compared to a year ago should build on the robust performance of agriculture in Q2. By contrast, industrial activity remains weak. Among the core industries in the index of industrial production (IIP), the output of coal contracted in October due to subdued demand, while the production of crude oil and natural gas shrank under the binding constraint of structural impediments. The production of cement, fertilisers and electricity continued to decelerate, reflecting the sluggishness in underlying economic activity. On the other hand, steel output has recorded sustained expansion following the application of countervailing duties. Refinery output accelerated on the back of a pick-up in exports and capacity additions. The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited. In the services sector, the outlook is mixed with construction, trade, transport, hotels and communication impacted by temporary SBN effects, while public administration, defence and other services would continue to be buoyed by the 7th Central Pay Commission (CPC) award and one rank one pension (OROP). GVA by financial services is expected to receive a short-term boost from the large inflow of low-cost deposits.
Given the event and its significance one wouldn’t be surprised to see it being the only thing discussed in the meeting. But to see it as 4th point in assessment with points like global growth and international financial market developments taking precedence is just amazing.
The views of the various members are just so similar as well. Ira Dugal of Bloomberg Quint sums up the views of the MPC members. 4 of the 6 MPC members used the word transitory to express impact of demonetisation! I mean it just reads like some sort of chorus. We are always told that MPC will bring diverse opinions but increasingly experiences show it is just similar thoughts at work.
So much so for the huge impact such changes were to bring to India’s monetary policy…