Kathmandu: Nepal Rastra Bank (NRB) has continued its liquidity absorption operations into the new fiscal year, aiming to stabilize excess liquidity in the banking system.
On Sunday, the central bank announced that it would absorb Rs 80 billion through a 56-day deposit collection auction.
This marks a continuation of the trend over the past two fiscal years, during which NRB has consistently intervened to absorb excess liquidity from the financial system. With the onset of the current fiscal year, the central bank has resumed its liquidity control measures from the very beginning.
On Sunday, NRB had already initiated a deposit collection auction worth Rs 50 billion. Now, it plans to conduct another auction on Wednesday for Rs 80 billion, also spanning 56 days. The interest rate for this deposit collection instrument will be determined through the auction process.
Due to lower credit deployment compared to the level of deposits, the banking system has been facing persistent excess liquidity. As a result, banks have been parking large volumes of idle funds with the central bank using instruments like the Standing Deposit Facility and deposit auctions.
According to data from 22 July, commercial banks have deposited a staggering Rs 675.35 billion with NRB, unable to channel the funds into productive investments.
With this context, the central bank’s upcoming auction aims to further absorb Rs 80 billion from the banking system, continuing its liquidity tightening efforts in the early days of the new fiscal year.
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