Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU – The Nepal Rastra Bank (NRB) is set to withdraw an additional Rs 60 billion from the banking system through a deposit collection auction scheduled for Sunday, in a continued effort to manage excess liquidity in the market. With this, the central bank’s total liquidity absorption will reach approximately Rs 436 billion as of this week.
According to NRB, the fresh round of liquidity absorption will be conducted through a 42-day term deposit instrument, and the interest rate for the instrument will be determined via auction. This move follows the bank’s ongoing policy of utilizing deposit collection tools to regulate excess liquidity in the financial system.
The central bank attributes the current liquidity surplus to a mismatch between slowing credit demand and rising deposit inflows, largely fueled by increased remittance income. While economic activity remains sluggish and loan demand has not picked up as expected, deposit levels have continued to grow, creating surplus liquidity in the banking sector.
In response, the NRB has consistently absorbed liquidity through open market operations and deposit collection instruments. As outlined in the current monetary policy, the central bank is using the deposit collection rate as the floor of the interest rate corridor, ensuring that interest rates do not fall below a certain threshold. NRB has also been offering a Standing Deposit Facility (SDF) at the floor rate to help maintain stability in interest rates.
As of last Friday, NRB had already absorbed Rs 436 billion from the banking system through various deposit auctions and liquidity management tools. The upcoming Rs 60 billion auction scheduled for Sunday will add further to the central bank’s efforts to tighten excess cash in the financial sector.
This move signals the NRB’s cautious stance on monetary stability, aiming to maintain equilibrium in the financial market while discouraging excessive drop in lending and deposit rates.
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