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<\/p>\nThe banking system liquidity bounced back to surplus mode after three weeks, the Reserve Bank of India (RBI) data showed.<\/p>\n
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This was due to government spending, according to dealers.<\/p>\n
The liquidity situation could further ease with the disbursement of the last tranche of incremental cash reserve ratio (I-CRR) worth Rs 50,000 crore on Saturday.<\/p>\n
As the liquidity improved, bond market participants expected the RBI to announce open market operation (OMO) of bond sales to suck out the excess.<\/p>\n
The market expects the central bank to sell bonds worth between Rs 10,000 crore and Rs 15,000 crore in the auction.<\/p>\n
Consequently, traders squared off their positions by the end of the trade, leading to the hardening of the yields.<\/p>\n
The yield on the benchmark 10-year government bond settled at 7.38 per cent on Monday, against 7.34 per cent on Friday.<\/p>\n
The liquidity improved because of the government spending, and rollback of I-CRR, a dealer at a primary dealers said.<\/p>\n
As the liquidity is in surplus now, there are expectations the RBI will come up with a notification on OMO.<\/p>\n
That’s why the yields rose by the end of the day, he said.<\/p>\n
Banks parked Rs 2,760 crore on Friday, according to the RBI data.<\/p>\n
The lenders parked Rs 5,390 crore and Rs 9,071 crore on Saturday and Sunday, respectively.<\/p>\n
RBI Governor Shaktikanta Das had on Friday said the central bank might conduct OMOs to mop up excess liquidity.<\/p>\n
Going forward, while remaining nimble, we may have to consider OMO sales to manage liquidity, consistent with the stance of monetary policy.<\/p>\n
The timing and quantum of such operations will depend on the evolving liquidity conditions, Das had said.<\/p>\n
The rate-setting panel has identified high inflation as a major risk to macroeconomic stability and sustainable growth, he had said.<\/p>\n
Accordingly, the focus remains on aligning inflation to the 4 per cent target on a durable basis.<\/p>\n
Market expects the surplus liquidity to persist for the next two weeks before the Goods and Service tax outflows starting around October 20.<\/p>\n
The liquidity should remain positive for two weeks, and then we have GST outflows from 19-20 October, it will again move to deficit mode, a dealer at another primary dealership said.<\/p>\n
The deficit liquidity neared Rs 1.47 trillion on September 19, the highest since January 29, 2020, when the banking system liquidity deficit went up to Rs 3 trillion.<\/p>\n
The liquidity went into deficit mode on August 21 for the first time in the current financial year.<\/p>\n