Liquidity proves a tough nut to crack for NRB

ShareSansar, October 1:

Excess liquidity in the capital market, which surfaced since the beginning of the current fiscal year, poses a daunting challenge to the central bank.

The liquidity in the banking system alone stands at a staggering Rs 60 arba.

Though the Nepal Rastra Bank is devising different strategies to mop up the glut, the measures have not been that effective.

As the demand for loan slumps, banks and financial institutions are being compelled to slash the interest rates.

Despite offering attractively low interest rate on home and auto loans targeting the festive season, the schemes have not been able to woo borrowers as they expected, bankers say.

Over the past one week alone, more than Rs 5 arba was added to the deposit accounts of the commercial banks while they could issue loans worth only around Rs 3 arba.

The central bank issued three reverse repos and an outright sale auction to manage the liquidity in September. And it is issuing yet another reverse repo worth Rs 10 arba today.

Rs 15 arba collected through the first two reverse repos oozed out to the market within a week after they were issued.

The NRB still retains Rs 8 arba collected through the outright sale auction and Rs 10 arba channeled through the third reverse repo.

The money collected through this reverse repo, too, will mature within a few days and the money will seep back to the market, experts say. This will create greater pressure on the central bank to mob the liquidity which is growing by the day.

Economists and other financial experts attribute the excess liquidity in the capital market to the timely and full budget announced by the government for the current fiscal year, the announcement of the Constituent Assembly election on November 19.

The surging price of US dollar, which leads to increased volume of remittance in the wake of the festive season have also led to excess liquidity in the system, they add.

Nonetheless, the central bank official and the top bankers of the country hope that the liquidity, which surged with the new fiscal year, will start decreasing after the festive season.