Banking liquidity falls to fiscal-year low, pushes up money market rates

Mumbai: Money market rates hardened to 5.37% on Thursday, versus an average of 5.16% a week ago as banking system liquidity fell to its lowest in this fiscal year.The liquidity in the banking system fell to its lowest in the current financial year, to ₹4,772 crore as of June 17, due to advanced tax outflows, economists said.

Liquidity was in surplus of around ₹1.70 lakh crore a week ago."The current decrease in surplus is majorly because of advanced tax outflows.

There was no intervention that impacted liquidity because the currency has now been appreciating for the past week," said Gaura Sengupta, chief economist at IDFC First Bank.During the quarterly advance tax outflows, around ₹2 lakh crore exit from the banking system, economists estimate.131844199Going forward however, she expects system liquidity to improve in the second quarter due to RBIs measures to attract foreign inflows by FCNR(B) deposits and ECB route."There will be a temporary influx of liquidity in the second quarter, and the RBI will have to figure out how to manage this large influx," Sengupta said.The liquidity deficit in the banking system is currently being bridged through the RBI's Variable Rate Repo (VRR) operations, under which banks borrow funds from the central bank against government securities.So far, the RBI has conducted three VRR auctions this week, with maturities ranging from overnight to seven days, providing temporary liquidity support to the banking system. ...