India's Banking System Liquidity Deficit Hits Record High

New Delhi: India's banking system liquidity deficit has hit a record high, reports on the basis of data from the Reserve Bank of India has shown.

A banking system's liquidity is calculated with an eye on supply and demand for central bank money.

Reuters had reported six days ago that India's banking system liquidity deficit had reached Rs 2 trillion rupees. This has pushed the weighted average interbank lending rate to near 6.75%. The RBI stopped withdrawing cash from the banking system through variable rate reverse repos.

Business Standard has reported that traders anticipate that RBI will infuse more cash to address the shortfall. They have also urged the RBI to ease liquidity conditions. Meanwhile, the deficit widened to Rs 3.34 trillion on January 23, nearly tripling from the start of the month.

The report noted that outflows towards tax payments and a slowdown in government spending could have led to the current situation.

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