Liquidity expected to go back into deficit: JP Morgan

Says the govt will cut spending to meet the fiscal deficit target

Rupee image via Shutterstock

India's liquidity is expected to go into its normal state of deficit from the current surplus, JP Morgan has said, arguing that the government will cut spending to meet the fiscal deficit target.

Government will also build back its cash balances, it said, adding that the deficit would preclude any large OMO sale.

Future RBI liquidity management will be mainly through FX forward interventions, it predicts.

Overall banking system liquidity deficit to average Rs 50,000 crore ($8.12 billion) through the rest of 2014-15. Overnight call will thus trade at close to repo rate, JP Morgan added.

(1 US dollar = 61.5400 rupees)