Cash deficit seen at 1.6 trillion rupees at end-March barring RBI - StanChart

Reuters Market Eye - Cash deficit in the Indian banking system is likely to widen to 1.6 trillion rupees by the end of March due to the government's fiscal restraint barring central bank action, Standard Chartered Bank analysts say.

They however do not expect much impact on the overnight cash rate if the central bank continues to provide liquidity support like in recent days.

Given recent stability in the forex market and still weak growth, Standard Chartered does not expect the RBI to be comfortable with elevated overnight rates.

"We therefore expect the RBI to further support liquidity to prevent the spillover effect of liquidity widening on money-market rates," the analysts say in a note.

If RBI support continues, the bank expects government bonds to remain well bid.

(Reporting by Swati Bhat)