For this week, Kotak Mahindra Bank expects the cash balances of the Centre to fall to around Rs 1.1 trillion amid month-end government spending. It stated that the general government cash balances as of 19 April 2024 moderated to around Rs1.3 trillion (from around Rs 775 bn in the previous week) led by goods and services tax (GST) collections.
“Based on the movement in the liquidity numbers last week, we expect the government cash balance to have increased to around Rs 2.4 trillion led by a higher share of GST collections compared to the previous week,” it added.
The system liquidity deficit last week (adjusted for CRR build-up) was tighter than our estimates following a higher share of GST outflows in the early part of last week compared to the previous week. However, it fell sharply to a deficit of Rs 1.6 trillion as of 26 April 2024 (from a surplus of Rs 383.8 billion as of 19 April 2024).
Consequently, the overnight rates increased sharply by 30 bps on a w-o-w basis to 6.67 per cent on 26 April 2024. To manage the liquidity deficit and overnight rates, the RBI conducted two VRR auctions last week (three-day and four-day auctions).
“Going into this week, we expect system liquidity conditions to improve led mainly by month-end government spending," the bank mentioned in the report.
Notably, the Indian rupee last week got some respite from a weakening US Dollar and range-bound Brent crude oil prices (at sub-USD 90/bbl levels). The DXY index was on a steady downtrend last week – falling by 0.9 per cent intra-week. However, the upside surprise to the March PCE inflation data caused the DXY index to end the week at 105.9 (higher than the previous day’s closing of 105.6).
Tracking a weaker US dollar, the Indian rupee strengthened by 0.25 per cent intra-week to Rs83.27/USD before RBI intervention caused it to end the week lower at Rs 83.35/USD. “Going ahead, we continue to expect the USD-INR to trade in the range of 83.25 to 83.75,” it stated.
