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RBI likely to keep banking system liquidity tight
October 06, 2023
The Reserve Bank of India (RBI) is unlikely to announce any liquidity measures in the upcoming monetary policy, but may keep liquidity conditions tight going forward, experts said.
“RBI is likely to prefer to keep liquidity conditions tight so as to prevent second-round effects from the surge in food inflation in July and August,” said Gaura Sengupta, Economist at, IDFC First Bank.
This is because experts believe that the liquidity in the banking system will turn positive in the coming days after the full reversal of Incremental Cash Reserve Ratio (I-CRR) funds.
Further they expect that the RBI will announce liquidity injection tools only if liquidity falls deficit during the festive season.
“In case the system liquidity deficit widens again during festive season, they will have to take adequate measures,” said Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincorp.
The liquidity in the banking system remained tight in the last few days after the advance tax payments and goods and service tax payments despite the reversal of I-CRR.
This led short-term overnight rates to rise above the repo rate and near to the marginal standing facility rate. Prior to this, liquidity remained in huge surplus and to tackle this on August 10, the RBI asked scheduled banks to maintain an I-CRR of 10 percent on the increase in their net demand and time liabilities (NDTL) between May 19 and July 28.
The measure was intended to absorb the surplus liquidity generated by various factors, including the return of ₹2,000 notes to the banking system.
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