A quick update on liquidity conditions – system liquidity remains tight, though WACR within policy corridor India system liquidity remained tight through much of Feb, though the extent of deficit has narrowed from the levels witnessed in Jan. This is on account of RBI’s overnight (variable rate repos) and durable liquidity (OMO purchases and USD/INR buy-sell swaps). As on 12th Feb, system liquidity deficit widened to INR 2.07tn (without adjusting to daily CRR imbalances). This is on account of anecdotes of significant RBI intervention to prevent spot INR from rising (weakening) over 88 levels (some estimates suggests the central bank sold over USD 10bn in the spot market this week) along with tax outflows. This deficit will be partly offset by the ongoing RBI’s OMO purchase auction (the quantum of OMO auction scheduled today was doubled to INR 400bn – preparing markets for further intervention coming in ?). (Note: Spot INR weakened to its fresh life-time low this week with emerging market currencies on global risk aversion and US president Trump’s tariff threats.
