Banking liquidity surplus shrinks on RBI's defence of rupee

GST outflows have also pushed up interbank cost of funds

Over the last couple of days, the interbank call money rate has hardened towards the upper band of the Reserve Bank of India’s (RBI’s) interest rate corridor as the liquidity surplus in the banking system has shrunk significantly due to the central bank’s interventions in the currency market, treasury officials said. 

Outflows on account of goods and services tax (GST) also played a role in reducing the surplus liquidity and sending the call rate sharply higher. 

The net outflows on account of GST are estimated around Rs 1.2 trillion to Rs 1.4 trillion in July, treasury officials said.  However, given that this