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Credit rating agency, India Ratings and Research (Ind-Ra) in its ‘September 2023 edition of its Credit Market Tracker’ report has said that the tightness in the liquidity market is likely to ease meaningfully in the coming quarter, as the government spending has increased, followed by a further release of money from the incremental cash reserve ratio funds. However, system liquidity is expected to remain volatile in October 2023 with the rising pressure on current account with seasonal cash outflows.

As per the report, foreign investors pulled out foreign portfolio investments (FPIs) of over $1.2 billion from Indian equity during September 2023. Overall net flows to the debt and equity markets turned negative for the first time since February 2023. This has happened at a time when crude oil prices stayed above $90/bbl, which is likely to exert pressure on India’s current account. The total FPI flows to equity and debt markets reduced substantially in September 2023 to $1.12 billion from $2.2 billion in August 2023.

Ind-Ra noted that as envisaged, the banking system liquidity was negative Rs 1.5 trillion in the middle of September 2023, owing to the quarterly advance tax payment followed by monthly GST payment. Commercial banks have borrowed Rs 2 trillion from the Marginal Standing Facility window to mitigate the frictional tightness in the banking system liquidity. Overall overnight rates inched up 10-15bp yoy in September 2023.