Experts are for some direction on liquidity

Credit Line

• Avg monthly liquidity absorption for last 2 months is well below Rs1 lakh cr
• Present liquidity equation may continue for foreseeable future
• RBI may not be required to resort to structural liquidity suction tools

Mumbai: xperts are expecting some direction on liquidity from RBI on December 8 as the system is in deficit for quite some time. The present liquidity dynamic prevailing in the market is governed by shallowness in the systemic liquidity with the overnight rates hovering near the upper band of the policy rate corridor (MSF) supporting effective transmission of the past rate actions. The average monthly liquidity absorption for the last two months is well below Rs1 lakh crore. Since the present liquidity equation is expected to continue for the foreseeable future, RBI may not be required to resort to structural liquidity suction tools such as OMO sale in coming months.

Analysts are also looking at upward revision on GDP growth this time.

In an interaction with Bizz Buzz, Madan Sabnavis, chief economist at Bank of Baroda (BoB), says, “some direction on liquidity will be useful to the market as the system is in deficit for quite some time. The RBI is most likely to maintain status quo on rates as well as stance this time. The high growth witnessed in Q2 in GDP will provide assurance that the economy is on track.”

The low core inflation numbers in the last few months will provide comfort that there is no need to increase rates even, while headline inflation is likely to be volatile in the upward direction.

There can be some upward revision in the GDP growth numbers though will not be very significant. We believe an upward revision of 0.1-0.2 per cent can be expected here. Inflation forecasts may remain unchanged and, if at all there is a revision, will be upwards, he said.

Mandar Pitale, head (treasury), SBM Bank India, says: “Overall data prints released after October MPC are supportive for MPC to continue with its current withdrawal of accommodation stance. MPC is also likely to maintain the status quo on rates in the forthcoming policy announcement.”

Forward guidance on inflation, comments on behaviour of systemic liquidity going ahead as well as any explanation on not using the structural liquidity tools such as OMO Sales as touched upon in the previous MPC will be keenly watched by the market participants.