NRB mopping up another Rs 40 billion in liquidity

 

KATHMANDU, MARCH 16: With persistent excess liquidity in the banking system, Nepal Rastra Bank (NRB) is absorbing another Rs 40 billion today through a 21-day deposit collection auction.

Despite a steady increase in deposits due to rising remittance inflows, credit expansion has not kept pace, leading to persistent excess liquidity in the financial system. In Falgun (mid-February to mid-March) alone, Rs 137 billion in remittance entered the country.

According to NRB, the online auction for deposit collection will take place at 3 PM today. Banks and financial institutions (BFIs) wishing to participate can bid with a minimum amount of Rs 100 million and a maximum of Rs 500 million per bid until the total amount is reached. The auction will be conducted on a multiple interest rate basis.

Only ‘A’, ‘B’, and ‘C’ class BFIs will be eligible to participate in the auction. The principal and interest payments for this 21-day deposit collection instrument will be settled on April 6.

Earlier, on March 12, NRB had collected Rs 50 billion through a similar 21-day deposit auction at an average interest rate of 2.98%. Prior to that, on March 9, it had absorbed Rs 25 billion at an interest rate of 2.99%. So far, Rs 144.3 billion absorbed through deposit collection instruments remains outstanding.

Although the external economy remains strong,  the sluggish domestic economic activity has squeezed the loan demands from BFIs. While remittance inflows continue to improve deposit levels, the lack of proportional credit disbursement has resulted in excess liquidity in the financial system.