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As the liquidity in the system is set to tighten due to advance tax outflows later this month, the Reserve Bank of India (RBI) is set to conduct a 14-day term repo on Friday.
“As the liquidity conditions are expected to tighten on account of advance tax payments commencing from mid-December, RBI has decided to provide additional liquidity of Rs 10,000 crore through the 14-day term repo scheduled to be conducted on Friday. Accordingly, the notified amount for the 14-day term repo auction to be conducted on Friday will be adjusted upwards by Rs10,000 crore,” said RBI.
RBI has been conducting such term repo auctions in the tenure of 7 days and 14 days since mid October. Such 14 day term repo auctions have been conducted thrice. Starting on October 18 then on November 1 and November 29 and has injected liquidity worth Rs 19,500 crore, Rs 38,502 and Rs 38,505 crore respectively.
According to street estimates there would be liquidity outflow worth Rs 50,000-70,000 crore due to this advance tax payment. Due to tight liquidity borrowing under RBI's daily Liquidity Adjustment Facility (LAF) as well as Marginal Standing Facility (MSF) will also increase.
The street also expects overnight rates to shoot up as liquidity tightens. But it is expected that rates will hover in the range of 7.75% to 8.75%.
