'During the transition process, we have some control over the withdrawals.'
'In terms of your wealth, the money in your deposit account is where it is.'
After the Reserve Bank's surprise decision to hold on to key rates, Governor Urjit Patel and senior colleagues spoke to the media on demonetisation, its impact on the economy and other key issues.
When will the limits on withdrawal be removed?
RBI Deputy Governor Ramasubramaniam Gandhi: The motivation of the decision was to deal with high quality counterfeit notes in these denominations and to unearth black money held in cash.
The RBI and the government were conscious of the immediate difficulties that people could face and measures were taken to mitigate these.
The problems of the common people were top of the mind of policymakers and all dispensations were taken to address these, without jeopardising the achievement of the larger policy objective.
The RBI and government note presses are working at full capacity, and all efforts are being made to deliver the notes to every part of the country.
During this period from November 10 to December 5, the RBI had supplied notes of various denominations worth about Rs 4 lakh crore.
The RBI and bank branches have supplied 19.1 billion notes of smaller denominations such as Rs 100, Rs 50, Rs 20 and Rs 10.
This is more than what was supplied in the past three years.
We reiterate that there is adequate supply of notes and urge the public not to hoard money and to switch to digital payment modes, (of which) there are several options, adequate safeguards and increasing acceptance.
What is the value of old notes that have come back?
R Gandhi: The total value is Rs 11.5 lakh crore.
There is speculation that a special dividend will be paid by the RBI to the government on account of the extinguished currency.
RBI Governor Dr Urjit Patel: The withdrawal of the legal tender characteristic status does not extinguish any currency on the RBI's balance sheet.
The notes are still the liability of the RBI as long as only the legal tender character is withdrawn.
Therefore, there is no question of any special dividend, as of now.
How much time is needed to move to neutral liquidity?
Urjit Patel: We had said we would move to a neutral stance over a period of time and that continues to be an objective.
As the temporary impact of demonetisation abates, we will be back on that path.
Will the RBI cut rates after the US Federal Reserve's move?
Urjit Patel: Our rate cut decision has nothing to do with the Fed's moves.
It is already factored in by all financial markets and we will wait for more data to come in.
We want to achieve a 5% inflation rate by the fourth quarter (January to March) and are on track to do that.
How much of different denominations are you printing?
R Gandhi: The need was based on what people wanted, the transactions people want to conduct.
That is why different denominations are needed.
That is why Rs 2,000 (the note) was decided to be printed.
Urjit Patel: What we have done over the past few weeks is to recalibrate our production towards the Rs 500 and Rs 100 notes.
Once that happens, the circulation of Rs 2,000 notes will also go up.
We will see the benefits of these moves in the coming days, as the production supply reaches banks.
There is a reduction in GDP estimates because of various factors; yet, there isn't any rate action.
RBI Executive Director Dr Michael Debabatra Patra: The Gross Value Added estimates are down by 50 basis points (bps) and much of it is because of the second quarter (July-September), which has passed.
The SBN (specific bank note) impact of 15 bps has also been factored in.
But we regard it as a very transitory phenomenon and so the monetary policy shouldn't be reacting to it.
Is there any cost-benefit analysis of the entire demonetisation process?
What happens if all the demonetised currency notes come back to the banking system?
Does that mean there was no black money problem?
Urjit Patel: The cost is what we are witnessing now and in terms of inconvenience, which we are all aware of.
The benefits are in the medium and long term, and on account of the fact that as the security of the new notes is enhanced, they will be more difficult to forge or fake.
We will have more transparency, in terms of fiscal and tax compliance.
Public finances could improve and a very important collateral benefit is the thrust on digitisation that is taking place.
The RBI, banks and the central government are working very closely and that benefit is going to catalyse and improve a whole host of factors in terms of transparency, accountability and ultimately the cost of printing money -- as more digitisation takes place, the total of paper currency we require will go down.
How do you deal with the trust deficit with banks that has arisen due to demonetisation?
Urjit Patel: The money in your bank account is yours.
There is a situation that during the transition process, we have some control over the withdrawals. This is not likely to be a permanent feature.
So, in terms of your wealth, the money in your deposit account is where it is.
There is absolutely no doubt that it is a liability the RBI will fulfil.
Yes, during the transition, there is an issue. But I don't think there is a fundamental trust deficit that has emerged.
In fact, most people seem to be saying that this was a good thing to do, for the reasons I just mentioned.
This is not a long-term issue at all and there is no question of any trust deficit being breached.