NRB issuing second reverse repo within a week

ShareSansar, Sept 11:

Nepal Rastra Bank (NRB) is issuing a reverse repo today, second within a week, to exact Rs 10 arba from the capital market to absorb excess cash in the banking system.

The central bank conducts a reverse repo whenever there is excess liquidity in the market and to contain the interest rates of bank and financial institutions (BFIs). This is done by selling treasury bills to the BFIs.

The Rs 10 arba reverse repo being issued today will mature within a week, according to central bank sources.

The NRB had issued a reverse repo worth Rs 5 arba only on last Wednesday.

NRB sources informed that in response to the last repo, which is expiring tomorrow (September 12), the BFIs have already applied for treasury bills worth Rs 30 arba.

The fact that the central bank is conducting two reverse repo in a week’s time -- that, too, after a hiatus of three years -- not only points out high liquidity in the market but also that the BFIs are keeping interest rates relatively higher than in India, which whose currency the Nepal’s rupee is pegged.

The last Wednesday’s reverse repo has brought down the average interest rate to 0.075 percent.

The NRB had last conducted reverse repo way back on Sept 15, 2010.

Currently the commercial banks alone have Rs 10 kharba and 19 arba in deposit, which is the highest amount ever. On the other hand, they have been able to issue loans worth Rs 7 kharba and 57 arba only.

Rs 19 arba has been deposited in the banking system in the current fiscal year alone.

Bankers maintain that there is a high fluidity in the market because the government was able to duly bring the budget for the current fiscal year this time around.

The timely budget injected new lease of life in the market and the investors started to deposit their money in banks, they said, adding the onset of the festive season also helped boost fluidity.

The lack of huge investment opportunity, huge investment by the government and the political parties in the run-up to the second Constituent Assembly election as well as the surging US dollar also compelled the central bank to issue reverse repos, they add.

The high liquidity has also led to decreased inter-banking lending and the lending interest rate.