The borrowings through the RBI repo window rose to a four-month high of Rs.1.016 trillion yesterday. The comfortable liquidity in the banking system proved to be shortlived as the demand for the cash from customers in the festival season and banks' repayment obligations are constricting liquidity in the market. Earlier in September, liquidity shortfall was observed on account of advance corporate tax outflows which soon receded later to as low as Rs.1840 cr on 5th October, as government spending picked up (as indicated in the graph with a dip).
Citing an increased pressure on the inter-bank liquidity, RBI is expected to return to open market operations sooner rather than later. The excess SLR investment of the banks is also likely to ensure success in the OMO auctions. This has also stoked speculations of further cut in the Cash Reserve Ratio (CRR) in the upcoming monetary policy if not a repo cut.
Below graph shows liquidity situation in the system since July
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