Central bank to hold Rs 19.5b reverse repo

Kathmandu, Jan 8 –  Nepal Rastra Bank ( NRB ) is conducting reverse repo worth Rs 19.5 billion on Thursday for a week to mop up excess liquidity in the market.

 

Reverse repo is a monetary mechanism through which the central bank absorbs additional liquidity of the banking system by paying certain interest rate.

 

Expectations that the excess liquidity situation will ease after the Constituent Assembly election (CA) have not materialised. As a result, the central bank is conducting the reverse repo for the third time in last one month. In the last two occasions, the NRB had mopped up Rs 34.5 billion.

 

Ever since the CA election on November 19, the central bank has absorbed Rs 64 billion and with the latest reverse repo, the figure will rise to a whopping Rs 83.5 billion.

 

If the issuance of development bonds and national saving certificates is also counted, the figure will increase to Rs 90 billion.

 

A senior NRB official said lending has remained poor even after the CA election, while increased remittance inflow has resulted in piling up of deposits in banks and financial institution (BFIs).

 

According to the NRB , the banking system currently has excess liquidity of around Rs 50 billion.  Since the CA election, lending of the commercial banks has grown by Rs 6 billion until December 13, 2013, while deposit grew by Rs 9 billion, according to Nepal Bankers’ Association.
“The government’s failure to spend has prevented the banking system from being further liquid,” said a central bank official, adding the government has Rs 50 billion unspent in its treasury.
As far as the interest rate of the reverse repo is concerned, it has been as low as 0.77 percent on an average. The interest rate in one-year treasury bills has also been at 1 percent, according to the NRB.

 

Himalayan Bank CEO Ashoke Rana said given sluggish lending, banks should make efforts to bring new customers to increase credit.

He said the number of people willing to take loans has increased after the CA election in the case of Himalayan Bank.
 

Source: ekantipur