Hailing the demonetisation step, Niti Aayog Vice Chairman Arvind Panagariya on Friday said the demonetisation of Rs 500 and Rs 1,000 currency notes will help keep inflation in check and also give an impetus to the white economy via the banking channel.
Cleaning of the black money is a very positive step and as a result transactions will begin to move into white economy through the banking system, Panagariya said in his interaction with the media in New Delhi.
Savings that were kept in different forms particularly in the form of currency notes, they will now move into bank deposits. So we will see some surge in bank deposits.Arvind Panagariya at the Economic Editors' Conference
He did concede that with old Rs 500 and Rs 1,000 currency notes being sucked out of circulation, there will be some impact on money supply.
As the black money goes out of the system, the money supply will shrink to some degree. This will reduce the inflation rate in the absence of any open market operations by the RBI.Arvind Panagariya at the Economic Editors' Conference
Speaking to BloombergQuint, the vice-chairman of NITI Aayog did say that he expects the RBI to do some open market operations to pump up the money supply in circulation.
With inputs from PTI.
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