Liquidity to remain tight this week

The liquidity in the system is expected to remain under pressure on outgo of funds for payment of broadband spectrum fees and government bond auction.

The daily bank borrowing at Reserve Bank of India’s liquidity adjustment facility (LAF) has remained above Rs 50,000 crore through the week ended June 25. It peaked to Rs 82,490 crore on Thursday, according to Reserve Bank of India data.

The payment for broadband spectrum resulted in over Rs 38,000 crore flowing out of the system. The government raised Rs 15,000 crore through auction of long-term bonds on Friday. The actual money would move out of the system in the early part of the week, dealers said.

Reflecting the absence of surplus cash in the market, overnight call rates have remained firm for past few weeks. On most days, they have ruled above the repo rate (5.25 per cent). Next week, rates are expected to move around 5.40 per cent, said a treasury head of a public sector bond house.

There is expectation that the level of LAF borrowing may be less this week, as some of the money in government accounts comes back into the system in the form of expenditure.

A treasury head with small a private sector bank said the level of borrowing at the repo window is expected to be less compared to the previous week. The pressure of garnering resources to grow business will subside.

Also, this being the second week for reporting fortnight, banks do not need much of funds to meet cash reserve ratio norms.

RBI has been alive to pressure on liquidity. Anticipating pressure on cash in the system, it, on May 28, allowed banks to avail additional liquidity support up to 0.5 per cent of their deposits. It has also begun conducting second LAF session.

The additional liquidity support and extra LAF session are available till July 2. If the liquidity remains tight beyond July 2, the Central Bank has an option to extend the tenure of this special window.