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Liquidity conditions likely to improve: Das

Liquidity conditions likely to improve: DasThe average total absorption under the liquidity adjustment facility (LAF) was 1.4 trillion in October-November, down from 2.2 trillion in August-September. Liquidity conditions are expected to improve in the coming months due to several factors, including a reduction in currency in circulation during the post-festival period, an increase in government spending in thezfinal few months of the fiscal year, and higher forex inflows due to the return of portfolio investors, said Shaktikanta Das, Governor, RBI on Wednesday while presenting his statement on Monetary Policy Committee’s meeting.

“RBI is ready to conduct LAF operations that inject liquidity as may be needed through our main operations,” Das said. “In doing so, however, we will look for a durable sign of a turn in the liquidity cycle when banks draw down a large part of their standing deposit facility (SDF) and variable rate reverse repo (VRRR) balances,” he cautioned.

As part of its gradual move towards normal liquidity operations, RBI has decided to restore market hours – from 9.00 am to 5.00 pm – in respect of call/notice/term money, commercial paper, certificates of deposit and repo in corporate bond segments of the money market as well as for rupee interest rate derivatives.

The weighted average lending rates (WALRs) on fresh and outstanding rupee loans have increased by 117 bps and 63 bps, respectively, during the period May to October 2022. On the deposit side, the weighted average domestic term deposit rate on fresh and outstanding deposits increased by 150 bps and 46 bps, respectively, during the same period.

Das added: “Our financial system remains robust and stable. Banks and corporates are healthier than before the crisis. Bank credit is growing in double digits for eight months now.”

Outlook for remittances is optimistic

The growth of services exports, mainly contributed by software, business and travel services remained robust at 29.1 % in April-October 2022. Remittances are scaling new heights and the outlook is optimistic with pick-up in activity in the middle east. According to the latest update of the World Bank, India’s remittances are estimated to grow by around 12 % to US$ 100 billion in 2022 from US$ 89.4 billion in 2021. In Q1:2022-23, remittances to India rose by 22.6% year-on-year. The net balance under services and remittances remains in large surplus, partly offsetting the trade deficit.

Growing consumer confidence

Going ahead, investment activity will get support from government capex. A pick-up in the share of fixed assets in total assets of manufacturing companies was visible in H1. According to surveys, consumer confidence has improved further. Manufacturing and infrastructure sector firms are optimistic about the business outlook. Services sector firms also expect activity to expand. The biggest risks to the outlook continue to be the headwinds emanating from protracted geopolitical tensions, global slowdown and tightening of global financial conditions.

“For the Indian economy, the outlook is supported by good progress of rabi sowing, sustained urban demand, improving rural demand, a pick-up in manufacturing, rebound in services and robust credit expansion. India will still be among the fastest-growing major economies in the world,” Das hoped.

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