JPMorgan sees a tightening of money market liquidity

Mumbai: India's money markets are likely to witness a tightening of liquidity in mid-March, but overnight rates are unlikely to spurt, JP Morgan said in a report.

The liquidity shortfall is estimated between Rs70,000 crore and Rs100,000 crore in March, the end of fiscal 2008, JP Morgan economists said.

While inefficiencies in the banking system could see a spike in cash shortage, the Reserve Bank would face difficult choices about how to respond to any such tightness, it said.

RBI, however, is unlikely to cut either the cash reserve ratio or the statutory liquidity ratio as the cash shortfall was likely to be only temporary, the report said.

The report attributed market volatility in the second half of March to unexpected and sizeable variations in the central and state governments' cash balances with the RBI and capital inflows.

While advance tax payments drain liquidity in mid-March, government spending tends to pick up in the week following, the report said.