Kathmandu: Nepal’s central bank, Nepal Rastra Bank, is set to withdraw Rs 40 billion from the banking system through a 89-day deposit collection auction on Tuesday, as excess liquidity continues to weigh on the financial sector. The move comes amid sustained surplus funds in banks, despite earlier efforts by the regulator to mop up liquidity through longer-term instruments.
The central bank had previously issued Nepal Rastra Bank bonds worth Rs 200 billion with a one-year maturity after its board decided that ongoing liquidity absorption measures were necessary. However, even after deploying those bonds, surplus liquidity pressures have remained in the system.
While bank deposits have continued to rise, demand for loans has not grown as expected. As a result, commercial banks have been steadily lowering deposit interest rates. The average maximum interest rate offered on individual fixed deposits by commercial banks has now fallen to around 4.5 percent.
According to central bank data as of February 16, although the banking system remains flush with liquidity, the amount absorbed through various tools has reached significant levels. In addition to the Rs 200 billion absorbed via central bank bonds, Rs 4.84 billion has been withdrawn through deposit collection auctions and Rs 205.5 billion through the standing deposit facility.
The standing deposit facility, which functions as the lower bound of the interest rate corridor, is currently set at 2.75 percent. For the upcoming Rs 40 billion absorption, the interest rate will be determined through a competitive bidding process. The latest measure underscores the central bank’s ongoing effort to stabilize short-term interest rates and manage surplus liquidity in Nepal’s banking system.
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