NRB absorbing Rs 25 billion to manage excess liquidity

KATHMANDU, FEBRUARY 25: Nepal Rastra Bank (NRB) is mopping up Rs 25 billion from the financial system on Tuesday through its deposit collection instrument, aiming to manage excess liquidity in the market.

The central bank has announced a bidding process for deposit collection with a maturity period of 22 days. This move comes as Rs 11.25 billion, previously absorbed from the financial system on February 5, is set to mature. To offset this liquidity, NRB is now targeting a higher absorption of Rs 25 billion. Earlier, NRB had planned to mop up Rs 35 billion, but banks and financial institutions (BFIs) had only deposited Rs 11.25 billion.

NRB deploys deposit collection instruments when the interbank interest rate falls below 3% to prevent excessive volatility. The interest rate for this operation will be determined through a competitive bidding process, helping regulate interbank market rates.

Eligible banks and financial institutions can submit their bids until 3 PM today. The settlement date for both principal and interest payments has been set for March 19. Bidders are asked to place offers with a minimum of Rs 100 million, while the maximum allocation per entity will be Rs 500 million to ensure broader distribution of liquidity absorption.

In recent times, banks and financial institutions have shown a preference for placing surplus funds in the Standing Deposit Facility (SDF) rather than deposit collection instruments. With declining interest rates, BFIs anticipate an increase in credit demand and are opting for SDF as a liquidity management tool.

On Sunday, NRB issued a call for deposit collection worth Rs 30 billion. However, as BFIs demanded interest rates exceeding 3%, the central bank accepted only Rs 16.2 billion. The higher interest rate bids led NRB to absorb a lower-than-planned amount.

Additionally, on the same day, BFIs placed Rs 70.90 billion under the SDF, which is set to mature today. Meanwhile, Rs 149.75 billion in outstanding deposit collections with NRB remains to be settled.