Liquidity Update

The Liquidity Update:

The liquidity surplus has turned flat as per the Money Market Operations report as on Sep 19, 2022. Liquidity surplus has shrunk to 294 crs after the advance tax outflow. The Durable liquidity surplus stands at 342k Crores ( Sep 9, 2022). As the government spends money, the system liquidity surplus will improve.

As the liquidity surplus has shrunk, the o/n rates have shot up with o/n call rate touching a high of 5.80% and Cash tom points trading at 0.80 ps.

OIS Rates have similarly inched up as global central banks* tighten monetary policy. 

1Y OIS 6.75% ( Resistance - 6.88% - 6.95% and then 7.05%)

5Y OIS 6.74% ( Resistance - 6.75% and 6.88% - 7.00%)

* Riksbank hikes its Rate by 100bps to 1.75%. 

Inflation continues to be single most important item for CBs. Data released shows German Producer Prices YY (Aug) rose 45.8% vs. Exp. 37.1% (Prev. 37.2%), MM (Aug) 7.9% vs. Exp. 1.6% (Prev. 5.3%)

Whether we get further upside on rates from the current elevated levels or pull back will hinge on the hawkishness interpreted from the FOMC rate decision on Sep 21.