Excess liquidity drying up

Excess liquidity drying up

The difference between M3 (money supply) growth and growth in nominal GDP is a measure of excess liquidity in the system, liquidity that can spill over to asset prices. The chart shows how liquidity jumped after RBI reduced rates from late 2008. Since then, however, with GDP growth rising and M3 growth slowing, that excess liquidity came down substantially in Q3 FY10. Moreover, with industrial growth strengthening and growth in money supply slowing even more since January 2010, excess liquidity is rapidly evaporating. That is seen in the rise in bond yields.

Also See Excess Liquidity (Graphic)

Graphic by Yogesh Kumar / Mint

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