Despite an absence of any maturing cash management bills (CMB) last week, surplus liquidity in the system remained at an average of R4 lakh crore over the course of last week, up from the R3.83 lakh crore at the end of the week ended February 18. Given that close to a third of the entire CMB outstanding at the moment is due to mature on March 3, the prevalent easy liquidity conditions are expected to persist, according to a report by Kotak Mahindra Bank.
Currently, the total CMB outstanding in the system is around R1.5 lakh crore, of which R50,000 crore of CMBs are maturing on Friday. Also, since this week also includes the last couple of days of the month, month-end government spending is yet another key factor expected to keep liquidity conditions at their elevated levels, possibly even improve it.
The bank’s forecast pegs liquidity in the system at R4.74 lakh crore at the end of the current week. “The currency in circulation (CIC) maintained its normalisation trend, increasing for the sixth consecutive week since demonetisation. CIC for the week ending February 17 surged by R34,141 crore, bringing the outstanding CIC to R11.31 lakh crore,” the report said. “Cumulatively since demonetization, CIC has increased by R2.33tn and now with the curbs on withdrawal being phased out completely by March 13, we expect normalcy to be restored very soon,” it added.
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However, the Reserve Bank has continued to conduct reverse repo auctions to absorb excess liquidity in the system. In the week ended February 23, outstanding reverse repos stood at R4.45 lakh crore. “Our estimates suggest that government cash balances with the RBI would have marginally decreased by approximately R15,000 crore to around R1.15 lakh crore. Cash balances are further likely to fall this week given the month-end government spending,” the bank said.