Liquidity has been in high surplus for a while and is likely to stay in surplus of around Rs 5 trillion going forward. Government spending, RBI G-SAP and fx flows will keep liquidity high. RBI is buying Rs 1 trillion of bonds this quarter under G-SAP. Covid lockdown will keep government spending high while fx flows can continue on back of global liquidity.
Total Forex reserves stood at USD 589.47 billion as of 7th May 2021. RBI sold net amount of USD 5.7 billion in March and has cumulatively bought USD 68.31 billion in the April-March FY21 period. RBI publishes fx data with a one-month lag.
RBI turned large forward buyer of USD. RBI net outstanding forward purchases were USD 72.75 billion as of March 2021 from net forward purchase outstanding of USD 73.20 billion as of Feb 2021.
System liquidity declined by around Rs 216 billion month on month and was at a surplus of Rs 4895 billion as of 18th May 2021. Reverse Repo stood at Rs 5.78 trillion. Currency in circulation rose by Rs 328 billion on monthly basis in May 2021(as of 7th May).
The ICDR as of 23rd April 2021 was 41.6%, credit grew by Rs 5870.09 billion, year on year, while deposits grew by Rs 14111.44 billion. Banks have to maintain CRR of 3.5% at present and SLR of 18.00%, and ideal ICDR for liquidity neutrality for banks is around 75%.
Liquidity Cheat Sheet
The Liquidity Cheat Sheet is for assessing system liquidity and the drivers of system liquidity.
System liquidity is defined as bids for Repo, Reverse Repo and Term Repo/Reverse Repo LAF (Liquidity Adjustment Facility), Long Term Repo Operations (LTROs)/Targeted Long-Term Repos Operations (TLTROs) auctions held by the RBI. Drawdowns from MSF and Export Credit Refinance Facility are the other constituents of system liquidity.
The need for liquidity is largely driven by the requirement to maintain CRR (Cash Reserve Ratio) balances with the RBI. Deficit system liquidity suggests that banks require to borrow from RBI to maintain CRR balances while surplus liquidity suggests that banks have excess funds over and above maintaining CRR balances.
The drivers of system liquidity include Currency in Circulation (outflows), RBI fx purchase (inflows)/ sales (outflows), RBI OMO sales (outflows)/purchase (inflows) and government surplus (outflows)/ deficit (inflows).
Currency in Circulation is money going out of banking system and being held as cash by the public. For example, if you draw cash from an ATM, money goes out as cash. Currency in Circulation is determined by need to hold cash for transactions and cash held as black money. Inflation affects need to hold cash as value of goods and services increases due to inflation.
RBI purchasing USD adds INR liquidity while USD sales lower INR liquidity as the central bank pays or receives INR for buying/selling USD.
RBI selling bonds through OMO takes out liquidity as markets pays RBI for buying bonds while bond purchases through OMO infuses liquidity as RBI pays the market for buying bonds. Maturity of RBI forward sale/purchase contracts also affect system liquidity.
Government surplus is money kept with the RBI while government deficit is money borrowed from the RBI. Government surplus is liquidity negative as money goes out of banking system into government account with RBI. Government deficit is liquidity positive as RBI lends money to government through WMA (Ways and Means Advances) facility. Government spends money by drawing down on WMA and that adds to banking system liquidity.
Others include IPO inflows that add to bank deposits, spectrum and other license auctions that add to government cash balances and MSS (Market Stabilization Scheme) that takes out liquidity from system as market pays for purchasing MSS bonds.
Advance tax payments goes out of banking system into government account with the RBI every quarter i.e. 15th of June, September, December and March.
Government bonds that mature and come up for redemption adds to banking system liquidity as money goes from government to holders of the bonds.
Government pays interest of around Rs 4000 billion every year and that adds to system liquidity.
Liquidity Operations (In INR Billions)
Liquidity Operations |
|
|
|
(In INR Billions) |
|
|
|
Liquidity Adjustment Facility | Amount Outstanding | Amount Outstanding | Amount Outstanding |
Liquidity Adjustment Facility | 19-03-21 | 26-04-21 | 18-05-21 |
(i) Repo | 0 | 0 | 0 |
(ii) Term Repo | 0 | 0 | 0 |
(iii) LTRO | -15.3 | -15.3 | -15.3 |
(iv) TLTRO | -755.52 | -805.52 | -809.53 |
(v) Reverse Repo | 5,020.57 | 6,203.20 | 5,775.22 |
MSS, CMB Bonds Outstanding | 0.00 | 0.00 | 0.00 |
Marginal Standing Facility | 0.060 | 1.210 | 1.080 |
Standing Liquidity Facility Availed from RBI | -326.57 | -272.02 | -55.88 |
Liquidity Deficit/Surplus | 3,923.24 | 5,111.57 | 4,895.59 |
Incremental Liquidity Deficit/Surplus | -2074 | 1188 | -216 |
Liquidity Drivers | 1st Mar 2021-19th Mar 21 | 20th Mar 2021-26th Apr 21 | 27th Apr 21-18th May 21 |
Growth in Circulation | 245.39 | 500.74 | 327.78 |
RBI FX Operations USD Billion | 72.75 | 9.00* | 0.00 |
RBI FX Operations Inflow/Outflow INR Billion | -411.23 | 1,552.83* | 0.00 |
RBI OMO Sale | -306.45 | -100.00 | -100.00 |
RBI OMO Purchase + Government Repurchase | 450.00 | 350.00 | 100.00 |
Government Surplus/Deficit | 0.00 | 0.00 | 0.00 |
RBI Fx Forward Sales (-)/Purchase (+) Outstanding USD Billion | 0.00 | 0.00 | 0.00 |
RBI Fx Forward Inflow/Outflow INR Billion | 0.00 | 0.00 | 0.00 |
Inflows/Outflow from Government | 0.00 | 0.00 | 0.00 |
Adjustment* | -2,051.47 | -1,115.24 | -543.76 |
Net Inflow/Outflow of Liquidity | -2074 | 1188 | -216 |
*Provisional data