Kathmandu: Nepal Rastra Bank (NRB) has intensified efforts to absorb surplus liquidity from the banking system, announcing a second consecutive auction of 175-day deposit collection instruments on Sunday amid sluggish credit growth and soaring deposits.
The central bank will conduct a competitive bidding process to mop up Rs 40 billion in long-term liquidity, matching the scale of a similar auction held last Wednesday. This marks the latest in a series of interventions as banks grapple with excess funds that have built up over the past two years.
With deposits surging by over Rs 200 billion in the first quarter of the current fiscal year—while loans expanded by less than Rs 100 billion—NRB has been consistently withdrawing liquidity to maintain interest rate stability. The persistent gap between deposit inflows and credit demand has prompted regular use of the interest rate corridor framework.
Under this mechanism, NRB offers a standing deposit facility at the corridor’s lower bound for short-term absorption, while long-term mop-ups are executed through deposit collection auctions. Sunday’s instrument will carry an interest rate determined solely by the bidding outcome.
The central bank’s proactive stance reflects broader economic challenges, including subdued private sector borrowing and heightened caution among lenders. By sterilizing excess funds, NRB aims to prevent undue downward pressure on market rates and support monetary policy objectives in a low-growth environment.
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