Sept. 24, The central bank is issuing a third round of reverse repo in a month as the amount of loanable funds in the banking system remains surplus.
Nepal Rastra Bank (NRB) will be undertaking another reverse repo worth Rs 10 billion tomorrow to absorb excess liquidity from financial system. As of this week, commercial banks alone have about Rs 60 billion loanable funds in their vaults.
“This will be the third time in the last one month that the central bank is using a seven-day reverse repo so that financial institutions with excess liquidity can invest in an interest bearing instrument,” said spokesperson for NRB Bhaskar Mani Gyanwali.
Last week, NRB undertook outright purchase auction for securities worth Rs 8.5 billion to mop up liquidity. Likewise, on September 4 and September 10, it conducted reverse repo worth Rs five billion and Rs 10 billion, respectively. Prior to that, NRB had done reverse repo back in September 2010.
Reverse repo refers to central bank accepting deposits from banks against collateral of securities with NRB at a certain rate. During reverse repo in early September, NRB had received bids for up to Rs 10 billion, while in second round of reverse repo, 26 financial institutions presented bids worth Rs 42 billion. First reverse repo rate was at 0.078 per cent, while next week’s reverse repo rate was fixed at 0.06 per cent.
“NRB is intervening so that a certain level of interest rates can be maintained,” informed Gyanwali. NRB is trying to bring a balance between deposit and lending by mopping up some funds to avoid interest rates from going abysmally low. If deposit rates go lower than the acceptable level, there is a danger that money can be moved to semi-formal deposit institutions. Moreover, too much money in circulation also puts upward pressure on prices.
According to Nepal Bankers’ Association data, as of September 20, 31 commercial banks collected deposits worth Rs 1028 billion and floated loans worth Rs 763 billion. NRB data shows in first month of 2013-14, loans and advances of financial institutions decreased by Rs 0.48 billion.
Source: THT
