J.P.Morgan says India’s liquidity deficit to worsen,hitting 1.5 trillion rupees ($28.10 billion) in June,as government spending remains tepid.
Core liquidity deficit could hit 1 trillion rupees by the end of June,bank says.
Deficit would only come down if there are more cuts in the cash reserve ratio or more open market operations,J.P.Morgan argues.
RBI needs to purchase 350 billion rupees in bonds via OMOs by June if they want to bring down core liquidity deficit to their comfort band,J.P.Morgan says.
Recommends investors continue to receive 5-year OIS as weak rupee likely to induce greater intervention by the RBI,and thus sterilisation via OMOs,which will push down bond yields.