Nepal Rastra Bank to absorb Rs 125 billion in liquidity

Kathmandu. Nepal Rastra Bank is set to collect Rs 125 billion in deposits on Friday. Even two weeks after the formation of the new government, excess liquidity remains in the market. To mitigate this, the central bank is once again using a deposit collection tool via competitive bidding to absorb funds.

With economic activity stagnant for a long period and the recent Gen-Z movement, credit flow from banks has failed to increase. Anticipating no immediate growth in lending, banks are showing little interest in deposit growth, lowering interest rates and discouraging fixed deposits.

Currently, total deposits have exceeded Rs 7.8 trillion. The central bank has been absorbing liquidity through deposit collection tools and standing deposit facilities to manage excess liquidity and interest rates in the financial system.

Only 'A', 'B', and 'C' class banks and financial institutions licensed by the Rastra Bank are eligible to participate in the bidding. The allocation of long-term deposit collection will be prioritized based on the lowest interest rates offered by counterparties. The bidding will be conducted via an online system, with interest rates determined through the process. The central bank stated that the principal and interest for this deposit collection tool will be paid on 2083 Baishakh 2. The minimum bid amount is Rs 100 million, and bids must be in multiples of Rs 50 million up to the total amount called.

Specifically, according to the central bank's open market operations procedures, if long-term excess liquidity is observed in the financial market, the Operations Committee can utilize long-term deposit collection tools with a maturity of up to 6 months to manage market interest rates. The central bank has been repeatedly utilizing this provision.