Demonetization: Rip Van Winkle
CPI Inflation for November 2016 was at 3.63%[3]against market expectations of around 3.9%. Incidentally this is a two year low. Credit growth in the fortnight post the demonetization has been a negative Rs 61,000 crores[2]This had actually been forewarned 4 weeks back on 18th November in the update "Demonetization: Gearing up for Policy Response" (https://ageofdeflation.blogspot.in/2016/11/demonetization-gearing-up-for-policy.html)
Now that the first data points on CPI and Credit growth is out it is now clear that the shock to GDP growth for FY17 will range from the minimum of -2.0% and upto -3.7% (as compared to the previous GDP growth estimates prior to the launch of demonetization). The shock to credit is expected to range from a -35% to -10%(at a minimum) at the end of FY'17 compared to October end '16.[1]This collapse in credit by anywhere by 1/10th on the lower side to a 'la Depression 1/3rd of credit stock will pulverize asset markets and crimp economic activity even further in FY'18.
Unless, off-course, the Government and the RBI act decisively. Till date neither have shown any inclination to act on urgently mitigating the negative growth shock from demonetization. Officialdom have till date justified their inaction on the grounds that there has been no fresh relevant economic data to justify any policy response. 13th December 2016 has taken away that excuse- both CPI and Credit data is now available for study. It will now be a wonder if we continue to behold such stasis until official GDP figures for FY'17 releases somewhere in the middle of Calendar year 2017 for 'contemplation' of some-forgotten urgently pending matter of rescuing a long forsaken ship then already rusting somewhere in the middle of some ocean bed.
References
[1]
https://ageofdeflation.blogspot.in/2016/11/demonetization-gearing-up-for-policy.html
[2]
http://www.news18.com/news/business/bank-credit-plunges-by-rs-61000-cr-in-post-note-ban-fortnight-1322474.html
[3]
http://m.economictimes.com/news/economy/indicators/retail-inflation-cools-to-two-year-low-3-63-in-november/articleshow/55961750.cms
CPI Inflation for November 2016 was at 3.63%[3]against market expectations of around 3.9%. Incidentally this is a two year low. Credit growth in the fortnight post the demonetization has been a negative Rs 61,000 crores[2]This had actually been forewarned 4 weeks back on 18th November in the update "Demonetization: Gearing up for Policy Response" (https://ageofdeflation.blogspot.in/2016/11/demonetization-gearing-up-for-policy.html)
Now that the first data points on CPI and Credit growth is out it is now clear that the shock to GDP growth for FY17 will range from the minimum of -2.0% and upto -3.7% (as compared to the previous GDP growth estimates prior to the launch of demonetization). The shock to credit is expected to range from a -35% to -10%(at a minimum) at the end of FY'17 compared to October end '16.[1]This collapse in credit by anywhere by 1/10th on the lower side to a 'la Depression 1/3rd of credit stock will pulverize asset markets and crimp economic activity even further in FY'18.
Unless, off-course, the Government and the RBI act decisively. Till date neither have shown any inclination to act on urgently mitigating the negative growth shock from demonetization. Officialdom have till date justified their inaction on the grounds that there has been no fresh relevant economic data to justify any policy response. 13th December 2016 has taken away that excuse- both CPI and Credit data is now available for study. It will now be a wonder if we continue to behold such stasis until official GDP figures for FY'17 releases somewhere in the middle of Calendar year 2017 for 'contemplation' of some-forgotten urgently pending matter of rescuing a long forsaken ship then already rusting somewhere in the middle of some ocean bed.
References
[1]
https://ageofdeflation.blogspot.in/2016/11/demonetization-gearing-up-for-policy.html
[2]
http://www.news18.com/news/business/bank-credit-plunges-by-rs-61000-cr-in-post-note-ban-fortnight-1322474.html
[3]
http://m.economictimes.com/news/economy/indicators/retail-inflation-cools-to-two-year-low-3-63-in-november/articleshow/55961750.cms
