Liquidity conditions set to improve on month-end GOI spending, though system will likely remain in deficit through March India system liquidity conditions is set to improve over the next few days on the back of month-end GOI spending (salary disbursals and others). However, conditions will remain in deficit through much of March on the back of quarterly advance tax outflows and GST payments. While the RBI intervention appears intermittent and passive lately, though the central bank is said to be actively defending INR when it crosses 87.50 levels. As on 27th Feb, the deficit was at INR 1.81tn (without adjusting for daily CRR imbalances). The deficit so far in Feb has narrowed to INR 1.6tn vs 2.1tn in Jan – brought about by a series of RBI’s durable (OMOs and buy-sell swap) and frictional liquidity operations. The central bank will be conducting a USD 10bn USD/INR buy-sell swap in early March – to support durable liquidity conditions. Despite conditions continuing in deficit territory, the weighted avearge call rate has remained within the policy corridor (with SDF being the lower bound and MSF the upper bound). We expect liquidity conditions to improve starting next financial year, with heavy G-sec redemption (starting May) along with a transfer of RBI surplus to the GOI.
