India Sees Tight Liquidity as Foreign Outflow and Trade Deficit Weigh
India’s banking system managed a sharp decline in liquidity on Monday, prompting the Reserve Bank of India (RBI) to inject ₹6,956 crore. The liquidity deficit surfaced after a prolonged period of surpluses.
This was largely attributed to a widening trade deficit and significant outflows by foreign portfolio investors (FPI), forcing the RBI to intervene in the market. Consequently, the weighted average call rate (WACR) climbed 22 basis points higher than the policy repo rate , reaching 6.72%.
We’re seeing a contraction in core liquidity — which includes system liquidity and government surplus — from a peak of ₹4.6 trillion on September 27 to ₹1.6 trillion on November 15. This drop in overall liquidity mirrors reserves dipping to $657.9 Billion — a four-month low.
!
**Interviewer:** With India facing a tightening liquidity situation due to factors like a widening trade deficit and FPI outflows, how concerned should businesses and investors be about the potential impact on economic growth?