NRB to issue reverse repo of Rs 19bn today

KATHMANDU:

The central bank will issue another round of reverse repo worth Rs 19.5 billion to mop up liquidity from the financial sector.

Nepal Rastra Bank will be undertaking the eighth reverse repo since the start of this fiscal year worth

Rs 19.5 billion tomorrow as financial institutions are facing difficulty in disposing surplus deposits, said spokesperson for NRB Bhaskar Mani Gyanwali. The reverse repo will be for a seven day period.

As of this week, commercial banks alone have about Rs 65 billion that can be lent to viable projects. Financial institutions will lend to the central bank against the collateral of government securities by bidding certain rates during the reverse repo.

Since the beginning of the current fiscal year, banks have been flush with deposits while credit expansion has been very slow. Their credit to deposit ratio stands at less than 75 per cent right now while regulation requires banks to maintain it at 80 per cent. The remaining five per cent deposits are sitting idle at banks putting pressure on their cost without yielding any income.

Since September, NRB has issued financial instruments worth Rs 107 billion to mop up excess liquidity. It had also held an outright sale auction for securities worth Rs 8.5 billion and issued development bonds worth Rs 10 billion to mop up liquidity.

Though the interest provided by the central bank on the reverse repo is less than one per cent, financial institutions are oversubscribing the issues. However, interbank lending rate at 0.2 per cent is way less than the 0.7 per cent offered by the reverse repo.

Reverse repos this fiscal

Date Amount Weighted average rate

5 Sep Rs 5 billion 0.0899

12 Sep Rs 10 billion 0.0642

26 Sep Rs 10 billion 0.0367

3 Oct Rs 10 billion 0.0542

5 Dec Rs 19 billion 0.0791

19 Dec Rs 15 billion 0.7172

2 Jan Rs 19.5 billion 0.7729

8 Jan Rs 19.5 billion (to be determined today)

Source: THT