The RBI has a total of $104 billion in net short positions as of June.
RBI governor Sanjay Malhotra said that banking system liquidity will peak in September due to inflows from FCNR(B) deposits, but it is unlikely to remain in a large surplus for a long time.
Economists expect banking system liquidity to peak at a surplus of ₹4-5 lakh crore, prompting the RBI to start withdrawing excess liquidity through durable absorption measures. “Assuming India attracts around $60 billion through FCNR(B) deposits, I expect banking system liquidity to rise to a surplus of about ₹5 lakh crore. That would work out to roughly 2.5% to 3% of net demand and time liabilities (NDTL),” said Madan Sabnavis, chief economist, Bank of Baroda.
Fine Balance Higher currency in circulation and maturing forward positions to help absorb liquidity brought in via FCNR(B) scheme
Special central bank schemes to draw foreign exchange into the country have resulted in total dollar inflows of $40.81 billion through July 31. FCNR(B) deposits accounted for the bulk of these inflows, at about $36.72 billion, the RBI said last week. Currently, system liquidity stands at a surplus of ₹3.33 lakh crore, while the daily average surplus stood at ₹1.01 lakh crore in June, RBI data showed. This amounts to around 1.2% of NDTL.
“Yes, the liquidity will shoot up in September, but there are also advance tax outflows that happen during that month. Plus, there can also be intervention in the foreign exchange market that can drain liquidity. So I expect the surplus to peak at around ₹4 lakh crore, which would be about 1.4%-1.5% of NDTL,” said Sakshi Gupta, principal economist, HDFC Bank.