NRB to hold reverse repo worth Rs 10bn

KATHMANDU:

The central bank is issuing another round of reverse repo as the amount of loanable funds in the banking system remains at surplus.

Nepal Rastra Bank will be undertaking the fifth reverse repo worth Rs 10 billion tomorrow to absorb excess liquidity from the financial system. As of this week, commercial banks have about Rs 75 billion stacked up that can be lent to viable projects.

“This will be the fifth time in the current fiscal year that the central bank is using a seven-day reverse repo instrument to absorb excess liquidity from the financial institutions,” informed spokesperson for NRB Bhaskar Mani Gyanwali.

NRB has already undertaken reverse repo worth Rs 35 billion between mid-September to mid-October. Likewise, it had held an outright purchase auction for securities worth Rs 8.5 billion to mop up liquidity.

“NRB is intervening so that excess money starts to affect the interest rates to go really low,” pointed out Gyanwali. NRB is trying to bring a balance between deposits and lending rates by mopping up some funds. If deposit rates go lower than the acceptable level, there is a danger that the money can be moved to semi-formal deposit institutions. In addition, if banks start to expand credit haphazardly, it will put pressure on inflation and also make the financial system vulnerable.

International Monetary Fund’s deputy managing director Naoyuki Shinohara who was here in Kathmandu had also advised some tightening of liquidity conditions to guard against risks of rising inflation and to reduce inflation expectations.

During the reverse repo, the central bank accepts deposits from the banks against the collateral of the securities with the central bank at a certain rate. Despite, the rates offered by NRB being less than 0.1 per cent, many financial institutions bid to use the facility so that their idle fund will bring marginal income.

According to Nepal Bankers’ Association statistics, as of November 8, 31 commercial banks collected deposits worth Rs 1066 billion, while they floated loans worth Rs 787 billion.

Source: THT