Festive spending, GST outflow push liquidity into deficit

Liquidity

Banking system's liquidity dipped into deficit this week as pubic held on to large quantities of cash during Diwali festivities and businesses transferred large sums on account of goods and services tax (GST).

Currency in circulation usually surges during the festive season, resulting in lowering liquidity in the banking system, money market experts said

According to the Reserve Bank of India (RBI) data, liquidity started turning deficit from October 20, the Diwali day, and the cash shortfall persisted till October 23.

Deficit stood at Rs 70,169.79 crore on October 20, Rs 61,647.79 crore on October 21, Rs 52,299.79 crore the next day and fell to Rs 2,645.79 crore on October 23. The system had a surplus cash of Rs 46,446.21 crore on October 19.

Currency in circulation increased in October by 8.8 percent, as comparted to growth of 6.5 percent in a year-ago period.

Given the tighter liquidity conditions, the weighted average call money rate during the week increased to 5.47 percent from 5.3 percent in the previous week.

To support liquidity, the central bank conducted a three-day variable rate repo auction and injected Rs 30,750 crore in the banking system.

Experts said that the liquidity is expected to improve and may turn positive in the coming week due to expected inflows from government spending towards salaries and -pensions, and other spending towards infrastructure.