NRB to sell securities worth Rs 8.5bn

KATHMANDU, SEP 18:

The central bank is undertaking outright sale auction tomorrow, following two consecutive weeks of reverse repo, to absorb excess liquidity in the financial system.

“Nepal Rastra Bank (NRB) will be selling securities worth Rs 8.5 billion to financial institutions tomorrow as outright sale auction,” informed spokesperson for NRB Bhaskar Mani Gyanwali.

Last week, NRB had undertaken seven-day reverse repo worth Rs 10 billion, while a week ago a similar reverse repo of Rs five billion was issued by the central bank. Last week’s reverse repo was oversubscribed by four times as banks are struggling with excess liquidity. Then 26 financial institutions had bid for securities worth Rs 42 billion.

Last fiscal year also, to absorb liquidity, NRB held an outright sale auction in which it sold securities worth Rs 8.5 billion to financial institutions. Outright sale auction refers to selling of securities with NRB directly to banks at certain interest rates. NRB had not held any reverse repo after September 15, 2010.

At present, commercial banks alone have about Rs 58 billion of loanable funds.

As of yesterday, commercial banks have collected deposits worth Rs 1023 billion and floated loans worth Rs 760 billion. Reverse repo and outright sale auctions are effective tools of the central bank to mop up excess liquidity from the financial system so that any adverse effect on interest rates can be avoided.

Likewise, excess money in the financial system contributes to rise in general price levels.

Source: The Kathmandu Post