MUMBAI: The Reserve Bank of India’s aggressive fund infusion in the past few months is beginning to show results, as the banking system’s liquidity position turned surplus at the end of March — the first time in three months.
The banking system’s liquidity stood at a surplus of Rs 89,399 crore on March 30. On March 29, the liquidity was at Rs 71,672 crore. The last time, there was a liquidity surplus was on December 15, when it stood at Rs 33,533 crore. At the start of December, the surplus stood at Rs 1 lakh crore.
In the past few months, the banking system was cash- strapped, as foreign institutional investors (FIIs) exited the market in droves. In the second half of FY25, FIIs sold shares of $25 billion, which led to significant pressure on the rupee.
In response, the Reserve Bank of India (RBI) sold dollars aggressively to defend the rupee that put pressure on the liquidity. In addition, there WERE tax outflows due to advance tax and goods and services tax (GST) payments.
In January, the RBI announced a comprehensive Rs 1.5-lakh-crore package, including purchases of government securities, variable rate repo auctions, and dollar-rupee swaps. Overall the central bank has infused over Rs 5 lakh crore in the past three months.
The surplus in the liquidity position has also happened because OF A RISE in spending by the government. FIIs have also turned net buyers in the Indian stock market in the last couple of weeks. Further, there are expectations OF the liquidity conditions EASING further in the April-June period, following the central bank’s transfer of surplus dividend to the government, estimated at over Rs 2 lakh crore.
The positive liquidity in the banking system is good news, as it could give comfort to banks to lower lending rates at a time when the RBI has taken its first step at cutting key rates, with a 25-basis points rate cut in February. Analysts expect there could BE two more rate cuts totalling 50 bps this financial year. There are expectations that the next rate cut may happen this month.
Source: The Financial Express
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