The banking system liquidity widened significantly during the week of September 30 to October 4, making it the 18th consecutive week of surplus liquidity. The estimated liquidity surplus almost tripled from the previous week to Rs. 2.46 lakh crores on October 4, with a record high of Rs. 2.65 lakh crores on October 3. This was due to higher government spending and lower government borrowings during the week. The call money market rate ended at a multi-year low of 4.94% for the week, below the repo rate for 3 days, as banks had lower need to borrow due to high liquidity levels. Liquidity levels are expected to moderate slightly in the coming week due

1. 10 October 2019
ECONOMIC
SPOTLIGHT
REPORT

2. 1
The liquidity surplus in the banking system in recent months has been supported by
incremental deposit growth (1 April –13 September’19) at 1.2% outpacing low credit off-
take (contraction of -0.7%) during the same period. However, banking system outflows
towards festive season demand (Navratri) and quarter end fund requirement by business
entities would have partially impacted net liquidity. During the week ended 4Oct’19, the
daily net absorption by the RBI from the banking system i.e. the daily repo and reverse repo
operations (including the fresh term repo and reverse repo auction and excluding the
outstanding term repo and reverse repo operations), widened significantly and was above
Rs 1.5lakh crsthroughout the week. The highest daily absorption was Rs 3.1 lakh crs on
3October.
The banking system liquidity widened significantly with the surplus having almost tripled during the
week 30 Sept-4 Oct from a week ago, making it the 18thconsecutive week suchsurplus. The estimated
liquidity surplus widened from Rs 1.1 lakh crs on 27 Sept to Rs 2.46 lakh crs on 4 Oct. The estimated
liquidity surplus of Rs 2.65 lakh crs on 3 Oct has been the highest since 13 Sept, 2017. The widening of
liquidity surplus in the week gone by can be attributed to higher government spending (evidenced by
decline in government of India surplus cash balance with RBI from Rs 46,430 crs on 27 Sept to Nil on 4
Oct)and lower government borrowings (Rs 16,000 crs during the week as against Rs 37,350 crs a week
ago).
Outlook on banking system liquidity for the week 7 –11 Oct, 2019
Economic Spotlight
10 October 2019

3. 2
 The call money market rate ended the week at multi-year low of 4.94%, 30bpslowerthan the
previous week close. The sustained period of liquidity surplus in the banking system and the
consequent lower borrowing by banks has lowered the call market rate to below the repo rate for 3
days during the week (5.4%till 3 Oct and 5.15% on 4 Oct). The call market rate at 5.41% on 30 Sept
was above the repo rate. The call rate had declined significantly by 15 bps from 5.41% on 30 Sept to
5.26% on 1 Oct.
 The average call rate during the week was 5.32%, 11bpslower than the average of the previous week.
The average call marketborrowings during the week ended 4Oct’19 was Rs 10,060 crs, almost half of
the average of the previous week. The average call market borrowings during 30 Sept-3 Oct was Rs
13,044 crs, but a significantly lower borrowing of Rs 1,109 crs on 4 Oct, dragged the averagefor the
weeklower.
 The net liquidity in the banking system would remain in surplus but could moderate during the
current weekowing to festive season demand(Navratri and Dussehra)and higher centre and state
borrowings (Central Government –Rs 16,000 crs and State Governments –Rs 19,334 crs).
The call money market rate ended the week at multi-year low
Economic Spotlight
10 October 2019

4. 9
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Economic Spotlight