Liquidity in the Indian banking system has gone into deficit: RBI
22 Sep 2022 15:29:13
New Delhi, Sept 22: Liquidity in the banking system has swung into deficit mode after remaining in the surplus mode for almost 40 months.
The change in the liquidity situation has come due to advance tax outflows for the second quarter. This also nudged up the call money rate temporarily above the repo rate.
The liquidity deficit in the banking system was estimated at ₹23,227 crores on Wednesday against the previous day’s surplus of ₹ 47,936 crores, per Bloomberg data. Consequently, the interbank call money rate rose above the repo rate (of 5.40 percent) to touch a high of 5.85 percent due to liquidity deficit, before cooling off to last trade at 5 percent (previous day’s last traded rate: 4.40), according to CCIL data. To help the banking system tide over the liquidity deficit and also soften call money rates, the Reserve Bank of India said it will conduct a ₹50,000-crore Variable Rate Repo (VRR) auction of one-day tenor under the Liquidity Adjustment Facility on Thursday. V Lakshmanan, Head of Treasury, Federal Bank: “Right now there is a bit of a deficit situation. In the last week, advance tax outflows have happened. Further, Goods and Service Tax-related outflows will be happening. “When this money comes back into the system, the situation will get reversed. The liquidity deficit is a transient situation at this particular point in time.” He said that the liquidity deficit is an event-driven action right now, which is a temporary situation that will get reversed. Lakshmanan observed that there has been a slight move up in the call money rates due to the liquidity deficit. Referring to the VRR auction announcement by RBI, he said this is a logical response to the liquidity situation.
Dipanwita Mazumdar, Economist, Bank of Baroda, opined that in the coming months, pressure on liquidity would continue from RBI’s forex intervention, capital spending of the government as also pick up in currency demand. “With credit growth already running at double-digit, it would add further pressure on the liquidity numbers. “Short-term rates thus would increase at a faster pace as the direct reflection of tighter liquidity and RBI’s rate hike would be on these papers,” she said.