BFIs snap up T-bills worth Rs 8.5b at 0.04pc discount
KATHMANDU, SEP 21 -
Six bank s and financial institutions (BFIs) on Friday purchased outright 32-day treasury bills worth Rs 8.5 billion at an average discount of 0.04 percent from Nepal Rastra Bank (NRB).
The T-bills do not pay interest prior to maturity, but are sold at a price lower than the face value of Rs 100 apiece. They are offered at auction where the central bank sells them to bidders quoting a price nearest the face value. When they mature, the buyer receives their full face value.
A total of 29 BFIs had placed bids for the treasury bills reflecting a rush among them to invest in these instruments even for small returns. Banks were willing to buy treasury bills for discounts ranging from 0.025 to 0.05 percent. “There is definitely excess liquidity among BFIs, and they don’t want to keep their money idle,” said a senior NRB official. According to the central bank , the bank ing system is awash in liquidity valued at Rs 50 billion.
Bankers said that lowered demand for credit and increased remittance in recent days had led to swelling deposits and a situation of excess liquidity. They said that deposits were likely to balloon further when migrant workers start sending money home for the Dashain festival.
A senior official of Nepal Investment Bank said that the central bank ’s latest measure was insignificant as there was a need for large-scale mop-up of liquidity from the market. NRB has issued the T-bills after conducting reverse repos of Rs 15 billion on two occasions to absorb extra cash in the economy. The reverse repo was oversubscribed with excess liquidity at a high last week.
“The central bank moved to mop up surplus liquidity from the market to prevent BFIs from lowering their interest rates on deposits sharply which might lead to capital flight to markets offering a better rate of return or an outflow of funds to the informal sector,” said the NRB official. He added that the situation of excess liquidity would normalize after there is an outflow of loans to pay for imports and people start withdrawing their savings to pay for festival shopping.
Source: The Kathmandu Post
