Banking liquidity turns deficit after two months amid GST outflows, RBI forex intervention
Liquidity in the banking system slipped into deficit on Monday after two months, primarily because of outflows due to goods and services tax (GST) payments. Market participants said the Reserve Bank of India (RBI)’s active intervention in the forex market to defend the falling rupee also weighed on liquidity conditions.
On Monday, the liquidity was in a deficit of Rs 6,956.24 crore, compared with a surplus of Rs 28,203.76 crore on Friday, according to the money market operations data of the RBI. In the last couple of months, there has been a surplus in liquidity to the tune of Rs 1.5-2 lakh crore.
Industry players said around Rs 1.6-1.8 lakh crore went out of the banking system on account of GST payments, pushing banking liquidity into deficit. Additionally, RBI’s active intervention in the forex market has also weighed on the liquidity, said market participants.
“Combination of GST outflows, G-Sec payments (securities that were auctioned on Friday) and selling from the RBI absorbed the surplus liquidity. Deficit will be moderated once the government month-end spending starts,” said a call dealer with a private bank.
Amid need for funds, the weighted average call rate has been hovering around 6.70-6.80% for the last two days, affecting the overnight Mumbai Interbank Offered Rate (MIBOR), the benchmark for other short-term borrowing instruments. This led to the tri-party repo rate to move near the marginal standing facility. On Tuesday, the call rate ended at 6.65%.
