Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank is set to withdraw NPR 40 billion from the banking system through its deposit collection instrument, as excess liquidity continues to build due to weak credit demand.
The central bank announced it will absorb the funds for a tenure of 160 days, aiming to manage surplus liquidity and stabilize interest rates in the financial system.
In recent months, sluggish loan demand has left banks and financial institutions flush with cash. As a result, institutions have been parking funds at the central bank at interest rates hovering around 3 percent. To manage this imbalance, NRB has been actively deploying monetary tools such as deposit collection instruments and standing deposit facilities.
Only licensed ‘A’, ‘B’, and ‘C’ class banks and financial institutions will be eligible to participate in the bidding process.
Under the allocation mechanism, bids will be prioritized based on the lowest interest rates offered by participating institutions, with funds allocated sequentially until the targeted amount is reached.
The bidding will be conducted through an online system, where interest rates will be determined competitively. The minimum bid size has been set at NPR 100 million, and bids must be submitted in multiples of NPR 50 million, up to the total announced amount.
The principal and interest for this 160-day instrument will be repaid on October 21.
NRB’s move aligns with its open market operations framework, which allows the central bank to deploy long-term deposit collection instruments—of up to six months maturity—whenever structural excess liquidity persists in the financial market. This provision enables the central bank to actively regulate liquidity conditions and maintain stability in market interest rates.
The repeated use of such instruments highlights ongoing challenges in credit expansion and reflects broader concerns about subdued economic activity and investment appetite in Nepal’s banking sector.
Your email address will not be published. Required fields are marked *
Comment *
Name *
Email *
Website
Save my name, email, and website in this browser for the next time I comment.
