Kathmandu: Despite the start of a new fiscal year, economic activities in Nepal have not expanded as expected, leaving credit demand sluggish and forcing the central bank to continuously absorb excess liquidity from the banking system.
The banking sector has been experiencing persistent surplus liquidity. With loan demand failing to pick up, the Nepal Rastra Bank (NRB) has been conducting deposit collection auctions twice a week to withdraw excess funds from circulation.
On Wednesday, the central bank announced another auction of Rs 50 billion through a 25-day deposit collection instrument. Just last Sunday, NRB had conducted a similar auction worth Rs 55 billion.
In addition to deposit collection instruments, the central bank has also been offering a standing deposit facility three times a week. Despite weighted average lending rates falling below 8 percent, credit expansion has not shown the expected improvement, prompting NRB to continue its liquidity absorption measures.
Since the beginning of the current fiscal year, the central bank has conducted liquidity absorption operations 33 times, totaling Rs 5.435 trillion. As of September 2, the cumulative liquidity absorbed from banks stood at Rs 636.3 billion. The upcoming Rs 50 billion auction will add further to that figure.
NRB stated that the interest rates on deposit collection instruments will be determined through competitive bidding.
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