Nepal Rastra Bank to Withdraw NPR 40 Billion in Deposits Amid Excess Liquidity

Kathmandu. Nepal Rastra Bank (NRB) is withdrawing NPR 40 billion in deposits today (Wednesday). Due to the persistent excess liquidity, the central bank is again drawing deposits through a competitive bidding process for 88 days. The total deposits have now exceeded NPR 77 trillion.

The central bank has been withdrawing liquidity through deposit collection instruments and the Standing Deposit Facility (SDF) to manage excess liquidity and interest rates in the financial system. Only 'A', 'B', and 'C' class banks and financial institutions licensed by the central bank are eligible to participate in the bidding.

When allocating the amount for long-term deposit collection, the allocation will be made sequentially based on the interest rates bid by the counterparties, prioritizing the lowest bid rates until the called amount is met. As deposits are surging, the bidding today will take place through the online purchase system, and the interest rate will be determined through bidding. The principal and interest for the deposit collection instrument being bid on today will be paid on 2083 Jestha 10, the NRB informed.

The minimum bid amount is NPR 100 million, and the maximum amount will be up to the total called amount, divisible by NPR 50 million. Specifically, according to the central bank's Open Market Operations Procedure, if a long-term excess liquidity situation is observed in the financial market, the Monetary Management Committee can use the long-term deposit collection instrument with a maximum maturity of six months under structural open market operations on any day as needed to manage it and stabilize market interest rates.

Relying on this provision, the central bank has repeatedly used the deposit collection instrument. According to Nepal Rastra Bank, as of the second quarter of the fiscal year 2082/83, a total of NPR 28,712.40 billion (transaction-based) liquidity was absorbed through deposit collection bidding (NPR 1,425.50 billion), Standing Deposit Facility (NPR 27,086.90 billion), and Nepal Rastra Bank Bonds (NPR 200 billion), with a net absorption of NPR 28,699.90 billion after injecting NPR 12.50 billion in liquidity through the overnight liquidity facility.

In the same period last year, a net liquidity absorption of NPR 13,999.80 billion was carried out through various monetary management instruments.