Bank to Withdraw Rs. 25 Arba in Liquidity on Friday, Depositing with NRB At 0.49 Percent Interest Rate
Nepal Rastra Bank (NRB) has implemented a series of measures, withdrawing a substantial Rs. 35 Arba over the past two days. An additional withdrawal of Rs. 25 Arba is slated for Friday, as part of the central bank's ongoing efforts to regulate liquidity.
To facilitate liquidity management, NRB introduced a deposit collection device valued at Rs. 25 Arba on Thursday, inviting proposals from banks. A total of 64 proposals were submitted, with banks expressing readiness to deposit funds at a competitive interest rate of as low as 0.49 percent. Notably, the proposed interest rates varied between 0.49 percent and 1 percent, resulting in an average interest rate of 0.8349 percent.
Comparing this to the preceding day's deposit collection of Rs. 10 Arba, where the average interest rate stood at 0.7048 percent, Thursday's average interest rate witnessed a slight increase. It's worth mentioning that while the average interest rate rose, the minimum interest rate decreased.
Since the beginning of Mangsir, NRB has withdrawn a total of Rs. 45 Arba from the banking system. The liquidity period of the Rs. 10 Arba drawn on Mangsir 17 is set to conclude on Mangsir 24. Concurrently, the central bank plans to draw an additional Rs. 25 Arba liquidity through a deposit collection on Mangsir 22.
Reflecting on the previous financial year 2078-79, certain banks grappled with liquidity shortages, relying on NRB's liquidity facility. Despite this, credit expansion remained subdued compared to deposits. The trend continues into the current fiscal year, with data revealing a notable imbalance between deposit growth (Rs. 2.9 Kharba) and modest loan growth (Rs. 1.25 Kharba) up to Mangsir 15. This scenario persists even as the government mobilizes over Rs. 1 Arba in domestic loans.
As of Mangsir 20, the weighted average inter-bank interest rate has dwindled to 1.03 percent, according to NRB data. The central bank had previously outlined in the monetary policy that if the weighted average interbank interest rate falls below the deposit collection rate, a permanent deposit collection facility would be provided. However, despite ongoing deposit collection tools utilization, this provision has yet to be implemented, highlighting the sustained surplus of liquidity in the banking system amid sluggish credit expansion.
