Surplus liquidity falls to lowest in 2 months due to advance tax outflows

Surplus liquidity as reflected by the amount of funds absorbed by the Reserve Bank of India fell to Rs 18,657 crore on Monday, the lowest since March 28, due to advance tax payments. 

“The reduction was expected in the later part of June, and the sudden drop is a response to the advance tax outflow,” Sakshi Gupta, principal economist at HDFC Bank, said. 

Due to the fall in surplus liquidity, the RBI conducted variable rate repo (VRR) auction after a month on Monday. Market participants expect more VRR auctions and the liquidity to stabilise by the end of the month.

“The liquidity should stabilize in the next 10-15 days, after both advance tax payments, and Goods and Services tax payments, “a dealer at a state-owned bank said. “I don’t believe it would go into deficit.”

An individual or a corporate entity owing Rs 10,000 or more in taxes for the year are required to pay advance tax. However, individuals who do not earn income from a business or profession are not obligated to pay advance tax. The advance tax is divided into four separate payments in a financial year, with the first installment due on June 15th.