Total Forex reserves stood at Rs 545.63 billion as of 2nd October 2020. In FY21 Forex reserves increased by USD 69 billion. RBI has pumped in over Rs 3 trillion of liquidity through fx purchases.
RBI built net forward purchase position in August 2020.RBI net outstanding forward purchases were USD 10.35 billion as of August 2020, as against net forward sales outstanding of USD 380 million in July 2020, RBI bought USD 10.68 billion of forwards purchase position. RBI net bought USD 5.31 billion in the spot market in August, infusing Rs 395.05 billion of liquidity into the system. RBI had been buying USD aggressively in August and July.
System liquidity fell by around Rs 128 billion month on month and was at a surplus of Rs 3691 billion as of 12th October 2020. Reverse Repo stood at Rs 5.3 trillion. Currency in circulation declined by Rs 163.13 billion in September 2020.RBI bought Rs 456 billion bonds and sold Rs 200 bonds through various operations such as OMO and Operation twists.
The ICDR as of 25th September 2020 was 37.06%, credit grew by Rs 5315.77 billion, year on year, while deposits grew by Rs 13965.67 billion. Banks have to maintain CRR of 3% and SLR of 18.00%, and ideal ICDR for liquidity neutrality for banks is around 75%.
Liquidity Cheat Sheet-
The Liquidity Cheat Sheet is for assessing system liquidity and the drivers of system liquidity.
System liquidity is defined as bids for Repo, Reverse Repo and Term Repo/Reverse Repo LAF (Liquidity Adjustment Facility), Long Term Repo Operations (LTROs)/Targeted Long-Term Repos Operations (TLTROs) auctions held by the RBI. Drawdowns from MSF and Export Credit Refinance Facility are the other constituents of system liquidity.
The need for liquidity is largely driven by the requirement to maintain CRR (Cash Reserve Ratio) balances with the RBI. CRR as of April 2020 is 3% of NDTL (Net Demand and Time Liabilities). Deficit system liquidity suggests that banks require to borrow from RBI to maintain CRR balances while surplus liquidity suggests that banks have excess funds over and above maintaining CRR balances.
The drivers of system liquidity include Currency in Circulation (outflows), RBI fx purchase (inflows)/ sales (outflows), RBI OMO sales (outflows)/purchase (inflows) and government surplus (outflows)/ deficit (inflows).
Currency in Circulation is money going out of banking system and being held as cash by the public. For example, if you draw cash from an ATM, money goes out as cash. Currency in Circulation is determined by need to hold cash for transactions and cash held as black money. Inflation affects need to hold cash as value of goods and services increases due to inflation.
RBI purchasing USD adds INR liquidity while USD sales lower INR liquidity as the central bank pays or receives INR for buying/selling USD.
RBI selling bonds through OMO takes out liquidity as markets pays RBI for buying bonds while bond purchases through OMO infuses liquidity as RBI pays the market for buying bonds. Maturity of RBI forward sale/purchase contracts also affect system liquidity.
Government surplus is money kept with the RBI while government deficit is money borrowed from the RBI. Government surplus is liquidity negative as money goes out of banking system into government account with RBI. Government deficit is liquidity positive as RBI lends money to government through WMA (Ways and Means Advances) facility. Government spends money by drawing down on WMA and that adds to banking system liquidity.
Others include IPO inflows that add to bank deposits, spectrum and other license auctions that add to government cash balances and MSS (Market Stabilization Scheme) that takes out liquidity from system as market pays for purchasing MSS bonds.
Advance tax payments goes out of banking system into government account with the RBI every quarter i.e. 15th of June, September, December and March.
Government bonds that mature and come up for redemption adds to banking system liquidity as money goes from government to holders of the bonds.
Government pays interest of around Rs 4000 billion every year and that adds to system liquidity.
Liquidity Operations (In INR Billions)
| Liquidity Adjustment Facility | 14-08-20 | 14-09-20 | 13-10-20 |
|---|---|---|---|
| (i) Repo | 0 | -10 | -100 |
| (ii) Term Repo | 0 | 0 | 0 |
| (iii) LTRO | -1251.17 | -1251.2 | -15.45 |
| TLTRO | -1129.00 | -1129.00 | -1129.00 |
| (iii) Reverse Repo | 6,004.51 | 6,313.89 | 5,311.12 |
| MSS, CMB Bonds Outstanding | 0.00 | 0.00 | 0.00 |
| Marginal Standing Facility | 0.000 | 0.000 | 0.000 |
| Standing Liquidity Facility Availed from RBI | -345.90 | -359.54 | -374.90 |
| Liquidity Deficit/Surplus | 3,278.44 | 3,564.18 | 3,691.77 |
| Incremental Liquidity Deficit/Surplus | -1062 | 286 | 128 |
| Liquidity Drivers | July 15th, 2020 - August 14th 2020 | Aug 15th, 2020 - Sep 14th 2020 | Sep 15th, 2020 - Oct 13th 2020 |
| Growth Currency in Circulation | -103.23 | -11.51 | 163.13 |
| RBI FX Operations USD Billion | 0.00 | 0.00 | 0.00 |
| RBI FX Operations Inflow/Outflow INR Billion | 1,196.77 | 0.00 | 0.00 |
| RBI OMO Sale | 0.00 | -300.00 | -200.00 |
| RBI OMO Purchase + Government Repurchase | 0.00 | 193.37 | 456.10 |
| Government Surplus/Deficit | 0.00 | 0.00 | 0.00 |
| RBI Fx Forward Sales (-)/Purchase (+) Outstanding USD Billion | -0.38 | 0.00 | 0.00 |
| RBI Fx Forward Inflow/Outflow INR Billion | 0.00 | 0.00 | 0.00 |
| Inflows/Outflow from Government | 0.00 | 0.00 | 0.00 |
| Adjustment | -2,156.00 | 404.00 | -291.00 |
| Net Inflow/Outflow of Liquidity | -1062 | 286 | 128 |