JPMorgan expects India's liquidity to go back into deficit as govt cuts spending

Global financial services provider JPMorgan has said India's liquidity is expected to go into its normal state of deficit from current surplus.

The government would cut spending to meet fiscal deficit target, JPMorgan said, adding that it would also build back its cash balances.

A report by the financial services major on Thursday said the government's deficit would preclude any large open market operation sale.

The future liquidity management by Reserve Bank of India (RBI) will be mainly through forex forward interventions, it added.

The report also said overall banking system liquidity deficit will average Rs 50,000 crore ($8.12 billion) through the rest of 2014-15.

JPMorgan said the overnight call will thus trade at close to repo rate.

(Reuters)