Export credit refinance did rise..

Just a followup to the previous post.

I had mentioned that RBI had allowed banks to take export credit refinance upto 50% of their export credit. This limit was to apply post 30 Jun 2012.

The recent data tells you that ECR has indeed risen. Check RBI’s Money Market Operations of Jun30, Jul 2, Jul 3 and Jul 4.

Standing Liquidity Facility Availed from RBI     Special Refinance Facility ^
30-Jun-12 8740.92 2279.5
2-Jul-12 17807.92 2279.5
3-Jul-12 21716.92 3108.5
4-Jul-12 18678.47 3108.5

So, there has been roughly a rise of Rs 10,000 Cr from this facility. This has helped in easing liquidity as well.

The liquidity situation has eased significantly in last two days. Borrowing on LAF repo was around 97,000 Cr on Tuesday and then crashed to Rs 48,000 Cr and Rs 14,ooo Cr on Wed and Thurs.

Couple of reasons for this:

  • First is extra flows via ECR as explained below – Rs 10500 Cr
  • Second is FII flows worth Rs 5300 Cr in 3 days
  • Third is coupon inflows worth Rs 6930 Cr (coupons on Government bonds)
  • All this adds up to roughly 19500 Cr
  • Then there is over-covering on CRR balances (read my WSS report for this). So banks were required to keep around 309,820 Cr with RBI as CRR balances. But maintained around 341,046 Cr (from 3–Jun to 2-Jul) or about 40,000 Cr extra. One can observe this from MMO of the respective days.
  • This apparently has been reversed on Wed and Thurs leading to liquidity worth Rs. 40,000 Cr or so coming back to the system. We need to wait for MMOs to prove this hypothesis right.
  • Some  even indicate higher govt. spending leading to infusion of liquidity..

My guess is this is all temporary because of sudden inflows. Should go back to 60-70,000 Cr deficit levels in sometime..

Very interesting times..We were looking at CRR cuts just a couple of days back…it looks comfortable now

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