By Dharamraj Dhutia
MUMBAI, March 17 (Reuters) - India's banking system
liquidity is likely to tighten further on a more persistent
basis with upcoming tax outflows and maturing repurchase
agreements with the central bank, analysts said.
"As we progress into FY24, we expect liquidity deficit
conditions to become more persistent on our expectation of a
mild BoP (balance of payment) deficit and usual currency leakage
seen during the year," Gaura Sen Gupta, economist with IDFC
First Bank, said.
Banking system liquidity deficit widened to 1.11 trillion
rupees ($13.46 billion) after advance tax payments, its highest
since April 2019 and will rise further after outflow towards
Goods and Service Taxes next week.
"I do not see liquidity turning into any meaningful surplus
unless there is a lot of dollar inflow and the RBI tries to
defend. But as a base case, I expect it to remain on the tighter
side," said Ashhish Vaidya, managing director and head of
treasury & markets at DBS Bank India.
Durable liquidity is also set to decline as funds infused by
the Reserve Bank of India in the form of Targeted Long term
repos (TLTRO) three years ago is scheduled to mature. The system
will see an outflow of over 730 billion rupees in the next five
weeks, traders said.
"We are not expecting any major foreign inflows in April, so
there may not be much support and conditions should tighten. The
RBI may not undertake proactive action but will not intervene in
natural process of (liquidity) tightening," said Abhishek
Upadhyay, senior economist at ICICI Securities Primary
Dealership.
Tight liquidity could also aid the RBI's inflation
management task, traders said. The apex bank has already raised
the repo rate by 250 basis points in the current cycle to bring
CPI within its 2-6% target band.
"The RBI will have to keep tight liquidity conditions as
inflation is still elevated and they cannot keep on increasing
rates, as growth is starting to get impacted," said Raju Sharma,
head fixed income at IDBI Mutual Fund.
($1 = 82.4730 Indian rupees)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Banking system liquidity in billion rupees ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Dharamraj Dhutia
Editing by Swati Bhat and Saumyadeb Chakrabarty)
