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Liquidity may continue to remain tight
March 16, 2023
Liquidity in the banking system may remain tight, with various corporates looking to make advance tax payments, goods & services tax payments and redemption of targeted longer-term refinancing operations in March.
The tight liquidity conditions are likely to remain going ahead, as central banks remain focused on removing excess liquidity from the financial system in order to tame inflation, say experts.
“Liquidity has been tightening and the RBI has been following a policy of keeping liquidity at lower levels than what they were earlier. CP rates are the first to respond because they are closely linked to Treasury Bill rates. Treasury Bill rates have shot up and I think the lending rate curve will move up, so things will become a little more costly for borrowers, starting with corporate borrowers, and this will slowly move to retail. There could be some seasonal relief on the interest rates going into April, but it will depend on the RBI’s policy,” Abheek Barua, chief economist, HDFC Bank, said.
“Even if there is some seasonal relief, liquidity is likely to be tight. The borrowing calendar will be announced, so things will ease a little post March. But on average, it will stay tighter than what you would have seen in the previous April, considerably tighter. That is because of the global inflation challenge and the local inflation challenge. This is going to continue. The RBI is still in a mode of withdrawal of accommodation, they are not turning neutral,” he added.
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