Banking liquidity surplus stays over ₹5 trillion for fifth straight day

Surplus liquidity in the banking system — measured by banks parking funds in the Reserve Bank of India’s liquidity adjustment facility — continued to stay over ₹5 trillion for the fifth straight day, data released by the central bank showed.

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The surplus was ₹5.25 trillion on Monday, followed by ₹5.13 trillion on Tuesday.

The weighted average call rate (WACR), which is the operating target of monetary policy, was at 5.08 per cent on Wednesday, as compared to 5.04 per cent on the previous day.

Market participants said inflows worth around ₹3 trillion, driven by year-end government spending and redemptions of government securities amounting to ₹86,403 crore and ₹34,791 crore, pushed the surplus beyond ₹5 trillion.

“Government spending of around ₹3.5 trillion — around ₹1.2 trillion in form of security redemption — and some decrease in the cash in circulation led to widening of the surplus,” said VRC Reddy, treasury head, Karur Vysya Bank.

With the WACR currently below the repo rate of 5.25 per cent, market participants expect the central bank to step up Variable Rate Reserve Repo (VRRR) operations to suck out the surplus liquidity.

In its Monetary Policy Report, the central bank noted that maintaining liquidity surplus in the range of 0.6-1.1 per cent of deposits would likely keep the spread between the WACR and the policy rate at 5-10 basis points.

Meanwhile, the yield on the 10-year benchmark government bond eased by 7 basis points to 6.87 per cent, tracking a decline in crude oil prices and US Treasury yields, against the previous close of 6.94 per cent on Monday. Bond and forex markets were closed on Tuesday on account of Ambedkar Jayanti. Dealers said profit booking limited further gains in bond prices.

“Since last closing, crude prices fell and US treasuries were also down by 8 bases. Now again, second round (of ceasefire talks) is building up over the weekend,” said a dealer at a primary dealership.

Crude oil prices fell to as much as $95 per barrel after US President Donald Trump announced a second round of ceasefire talks with Iran in Pakistan.

The rupee ended flat at 93.38 per dollar after opening 20 paise stronger than its previous close. Forex dealers said firm dollar demand from importers and oil marketing companies led the local unit to pare its gains towards the end of the session.