Reuters Market Eye - The 0.4 percent fall in Indian bank deposits in December has been pinned to various reasons including negative real interst rates and a preference for higher-yielding gold assets, all of which are "completely off the mark," says Bank of America Merrill Lynch.
Instead, the fall has more to do with a statistical quirk: the RBI counts bank deposits on the last Friday of the month, which can skew numbers depending on when the month actually ends.
Thus in December, RBI counted deposits on Friday, December 28, even though the month did not end until Monday, December 31.
Looked through a longer period, BofA Merrill says the lack of liquidity and the impact on deposit growth is the far bigger concern given it can impact lending rates.
The RBI's $35 billion in forex intervention has sucked out rupee liquidity, and thus BofA Merrill expects the RBI to buy an additional 320 billion rupees worth of bonds via OMOs by March 2013.
Merrill expects deposit growth of 15-16 percent by March, now that the RBI has cut the cash reserve ratio by 50 bps and resumed OMOs.
(Reporting by Subhadip Sircar)