 "RBI, Reserve Bank of India")
Banking system liquidity has been gradually improving due to higher government spending. Market participants expect that it will improve further by the end of the current week.
According to Reserve Bank of India (RBI) data, banks parked Rs 17,203 crore with the apex bank on Sunday.
“We are hearing from sources that from Monday there will be government spending and liquidity will ease during the week,” a dealer at a state-owned bank said.
Banking system liquidity went into surplus mode on Thursday after being in deficit for three days. Liquidity slipped into deficit mode on Monday for the first time in the current financial year.
RBI has been leveraging the liquidity conditions in its fight against inflation.
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Consequently, the banking system’s liquidity slipped into deficit mode in the previous week as the RBI decided to withhold a significant portion of banks’ surplus funds. It was aimed at curbing inflationary pressures, exacerbated by the outflow of taxes.
Market participants speculated that interventions by the RBI in the foreign exchange market — by selling dollars in order to protect the rupee from further depreciation — also weighed on the liquidity.
The rupee appreciated by 3 paise on Monday to settle at Rs 82.63 per dollar. This was on the back of foreign inflows in domestic equities, dealers said. The local currency touched the day’s high of Rs 82.53 per dollar in early trade.
“There were inflows and rupee demand was there,” a dealer at a state-owned bank said.
“But, we also heard that the central bank was there. That’s why the rupee fell from Rs 82. 53 level to the closing level,” he added.
Comments by US Federal Reserve chair Jerome Powell on Friday had failed to give any clear guidance on the future rate trajectory. Market participants were confused by Powell’s comments.
Consequently, traders resumed their value buying in the domestic government bond market.
They expect the yield on the benchmark 10-year bond to remain below the psychologically crucial 7.25 per cent mark. This is due to the lack of any significant cues, dealers said.
Yield on the benchmark 10-year government bond fell by 2 basis points (bps) to settle at 7.18 per cent, against 7.2 per cent on Friday.
“Those who were on the sidelines ahead of the speech, have resumed their buying spree,” a dealer at a primary dealership said. “Mutual Funds were sitting on funds that they deployed in the market on Monday,” he added.
