Central Bank Intervenes with Rs 30 Billion Mop-Up to Stabilize Market

KATHMANDU: In a decisive move to manage excess liquidity in the financial system, Nepal Rastra Bank (NRB) mopped up Rs 30 billion from the market on Sunday. The central bank’s action follows the accumulation of surplus funds within the financial sector, prompting a need to stabilize the monetary environment.

The NRB’s intervention on Sunday comes after a series of similar measures taken in the preceding days. Last Thursday, the central bank absorbed Rs 40 billion, followed by an additional Rs 12.15 billion on Friday. These actions are part of NRB’s regulatory framework, which mandates liquidity management to maintain market stability.

The catalyst for these measures was the decline of the interbank rate below three percent. NRB regulations stipulate that when the interbank rate drops below this threshold, the central bank must absorb excess money from the market. Conversely, when the rate exceeds seven percent, NRB injects liquidity to balance the system.

To facilitate the latest mop-up operation, NRB utilized its deposit collection mechanism, inviting participation from commercial banks, development banks, and finance companies. Eligible institutions had the opportunity to submit bids until 12 noon on Sunday.

The central bank’s proactive approach underscores its commitment to maintaining monetary stability amid fluctuating market conditions. By absorbing surplus funds, NRB aims to prevent potential imbalances that could disrupt financial markets and economic activities.

The recent series of liquidity absorption measures highlights the dynamic nature of Nepal’s financial system, where periodic adjustments are necessary to ensure optimal functioning. The NRB’s actions are a response to the complex interplay of factors influencing liquidity, including economic activity, government spending, and market sentiment.

The financial sector’s response to NRB’s mop-up operations has been positive, reflecting the institutions’ readiness to align with regulatory directives. This cooperation is crucial for maintaining a stable and predictable monetary environment, which is vital for sustained economic growth and investor confidence.

As NRB continues to monitor the financial landscape, further measures may be implemented to address any emerging liquidity challenges. The central bank’s vigilant approach ensures that it can respond swiftly to market developments, thereby safeguarding the stability of Nepal’s financial system.

In the broader context, NRB’s liquidity management efforts are part of its overarching mandate to ensure price stability, support economic growth, and maintain financial stability. The central bank’s actions are guided by a comprehensive understanding of the economic indicators and trends that shape the financial ecosystem.

Looking ahead, the effectiveness of NRB’s liquidity management strategy will be closely watched by market participants and economic analysts. The central bank’s ability to navigate the complexities of the financial system will play a critical role in fostering a resilient and robust economy.

In conclusion, Nepal Rastra Bank’s recent absorption of Rs 30 billion from the market is a strategic measure to address excess liquidity and maintain monetary stability.

This action, along with previous interventions, reflects the central bank’s commitment to proactive and responsive financial management. As the economic landscape continues to evolve, NRB remains poised to implement necessary measures to ensure a stable and thriving financial system.

Fiscal Nepal |
Monday June 10, 2024, 11:58:54 AM |

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