Making Sense

T he MPC is scheduled to announce the interest rate decision on Feb 8, 2024. Expectations: Interest Decision     No change expected, 6.25% - 6.50% - 6.75% (SDF - Repo - MSF) Policy Stance        Withdrawal of Accommodation (the monetary policy stance hinges on the direction of policy rates) - Strength of the Domestic Economy gives RBI the latitude to be patient to assess evolving risks and retain the possibility of a further hike, hence no change in policy stance is expected. Liquidity management The system liquidity deficit reached a peak of 346K Crore on Jan 24. The O/N WACR was seen at 6.77%. The system liquidity has steadily improved and the WACR dropped to 6.29% on Feb 2, 2024. The reason being that market participants have taken up 250K crore through a 15 day Repo conducted by the RBI on Jan 25, 2024 and as liquidity conditions have progressively improved on month end Government spending, market participants are parking funds in SDF and the...

Embrace the "Mujo" philosophy which involves acknowledging the impermanence and transience of all things in life. In trading, the environment is changing constantly and we must endeavor to recognize the changes and quickly adapt to respond better to the changing environment.  In the Oct 6 Policy Statement, Governor mentioned the possibility of OMO Sales and   I wrote in an  earlier article  the expectations for the same. Additionally, OMO Sales were seen as a tool for maintaining the interest rate differential with the U.S. Durable Liquidity (in Inr Crs) as on Dec 15, 2023 215,664 CiC (in Inr Crs) as on Dec 15, 2023 33,67,675 Estimate CiC Increase over the next Quarter (in INR Crs) 150,000 Durable Liquidity est as at end of Mar 31, 2024 (in INR Crs)* 65,000 Estimated CiC Increase in April 2024 (in INR Crs) 65,000 – 75,000 Estimated CiC ...

Consistency trumps drama - Howard Marks Today, USDINR traded within the familiar 83.00 - 83.30 range with Nifty trading in green with gains of close to 1% following the move higher in US equities post the welcome NFP print.  Yield on IN10s trade ~ 2 bps lower at 7.30% as the specter of OMO looms large (swing high 7.39%).  Domestic Liquidity turned surplus on Nov 3 as Government Spending kicked in with system surplus seen at 13,500 crs. As the system turns surplus, the OMO estimates become crucial.  Facts - FY24 OMO sales are at INR 18K Crore. Government's Budgeted G-Sec gross borrowing is INR 15.43 trn and Net borrowing is budgeted at INR 11.81 trn. We can anticipate OMOs basis the turn in liquidity into surplus. (Refer to earlier article on the same) Durable liquidity arises from permanent or long term changes in liabilities of RBI , viz., expansion / contraction of CiC and increase/decrease of banking system reserves due to unsterilized FX interventions.  As on Oct...

RBI announced a fine tuning liquidity operation to the tune of INR 75000 cr for liquidity infusions on 24th March 2023 on account of maturity of 95K crore of outstanding Repo operations. The uptake was to the tune of 56K Cr, lower than the notified amount of 75K cr. Accordingly, Liquidity injected from O/S operations stands to the tune of INR 92K crore and fine tuning operations stands at 56K crore. Net liquidity absorbed through the corridor facilities (MSF + SDF) stands at 70K crore. LAF injection is at 78K crore . W eighed Average Call Rate has been stable at 6.55%.   Durable Liquidity has been steadily declining and as on 10 March 2023, the number stood at 101K cr declining 58k cr between 24 Feb 23 and 10 Mar 23. As on 16 Dec 2022 durable liquidity was 299K cr and CIC 32.41 Lac cr. CIC for the w/e 10 Mar 23 is 33.73 lac cr, change of 1.3 lac cr. So durable liquidity has seen a change of 198k cr which can be explained through 1.3 lac cr change in CIC and the balance Inr 68k cr ...

Current liquidity operations with the RBI As on 26th Dec 2022, the net LAF injection by RBI stood at 15K crore. Understanding the component wise break up is important here:  The maturity profile of the outstanding operations is as : RBI stance on liquidity RBI in the last monetary policy meeting retained the stance towards withdrawal of accommodation. The document stated "RBI remains watchful of evolving liquidity conditions and stands ready to inject liquidity, if required, to meet the productive requirements of the economy. This, however, would be contingent upon a durable turn in the liquidity cycle when banks would move away from holding large balances under the SDF and variable rate reverse repos". Anticipating the future liquidity trajectory Variable rate reverse repo stand at 13453 crs maturing on Dec 30, 2022.  Now the liquidity management framework (26 Sep 2019) recommended that the design of the corridor system generally requires system liquidity to be in a small de...