Liquidity management under strain: Rs 1.718 trillion absorbed in 9 months

KATHMANDU, MAY 12: Since last year, Nepal Rastra Bank (NRB) has been facing growing challenges in managing liquidity within the financial system. These difficulties have intensified in the current fiscal year. Despite the interest rates declining to historically low levels,  the credit expansion has remained below expectations, resulting in continued excess liquidity in the financial system.

According to the central bank, in the first nine months of 2024/25, a total of Rs 1.718 trillion (based on transaction volume) was absorbed from the market. In addition, Rs 27 billion was utilized under the overnight liquidity facility.

Out of the total liquidity absorbed, Rs 221.25 billion was sterilised through deposit auctions, and Rs 1.497 trillion through the Standing Deposit Facility, resulting in a cumulative absorption of Rs 1.718 trillion.. In the corresponding period of the previous fiscal year, net liquidity absorption through various monetary instruments had stood at Rs 766.19 billion.

During the review period, NRB purchased USD 363 million from the foreign exchange market (via commercial banks), injecting Rs 484.71 billion into the financial system. In the same period last year, USD 426 million had been purchased, resulting in a liquidity injection of Rs 566.55 billion.

Similarly, the central bank sold USD 284 million during the review period, obtaining Rs 386.81 billion worth of Indian currency. In the corresponding period of the last year, USD 276 million had been sold, yielding Rs 366.99 billion in Indian currency.

In the first nine months of the current FY,  the interbank transactions amounted to Rs 1.512 trillion, comprising Rs 1.363 trillion among commercial banks and Rs 148.31 billion among other financial institutions. In the same period of last year,  the total interbank transactions stood at Rs 3.508 trillion—Rs 3.186 trillion among commercial banks and Rs 321.6 billion among other financial institutions.