After Increasing Liquidity, Nepal Rastra Bank Issues Rs. 20 Arba Reverse Repo for the Fourth Time This Year

After the accumulation of liquidity in the banking system, Nepal Rastra Bank (NRB) has once again issued a reverse repo. NRB, which previously issued reverse repos on Ashad 7 and 10, has now issued Rs. 20 Arba on Tuesday.

The reverse repo is a monetary tool used to draw excess liquidity into the system. NRB had previously issued a reverse repo of Rs. 10 Arba on Ashad 7 and Rs. 20 Arba on Ashad 10.

There is approximately Rs. 40 Arba of excess liquidity in the system. With the increased liquidity, NRB has now issued a reverse repo for the fourth time in the current financial year.

Previously, a reverse repo of Rs. 5 Arba was issued on the 10th of Chaitra.

A reverse repo, or reverse repurchase agreement, is a financial transaction where the central bank or a financial institution sells securities to another party with an agreement to repurchase them at a later date. It is used as a tool by central banks to manage liquidity in the financial system, particularly when they want to reduce the amount of money in circulation. Through reverse repos, excess liquidity is temporarily drained from banks as they sell securities to the central bank in exchange for funds. This helps tighten the money supply, control inflation, and regulate interest rates. Reverse repos are short-term transactions aimed at managing short-term liquidity fluctuations.