Central Bank Withdrawing 40B NRS from Banking System
25th February 2026, Kathmandu
The monetary landscape in Nepal has reached a point of significant intervention as Nepal Rastra Bank (NRB) officially announced the withdrawal of 40 billion rupees from the domestic banking system. Scheduled for execution on Wednesday, February 25, 2026 (Falgun 14, 2082), this massive liquidity absorption is being conducted through a 88 day deposit collection instrument. This move comes at a time when commercial banks, development banks, and finance companies in Nepal are grappling with a persistent surplus of investable funds, a situation commonly referred to as excess liquidity. By siphoning off 40 billion rupees, the central bank aims to prevent the oversupply of money from driving short term interest rates to near zero levels, which could otherwise lead to capital flight or excessive credit growth in unproductive sectors.
Central Bank Withdrawing 40B
The mechanics of this withdrawal involve a competitive online bidding process hosted by the central bank’s Monetary Management Department. Licensed Class A, B, and C financial institutions have been given a deadline of 3 PM today to submit their bids. The parameters for participation are strictly defined to ensure orderly market conduct; the minimum bid amount is set at 10 crore rupees, with increments of 5 crore rupees thereafter. This auction based approach allows the market to determine the interest rate at which banks are willing to park their idle cash with the central bank. For many institutions, participating in this 88 day deposit facility is a safer and more predictable alternative to the highly volatile interbank lending market, especially during periods when credit demand from the private sector remains sluggish.
The primary objective behind the withdrawal of 40 billion rupees is to maintain the interest rate corridor, which is a fundamental pillar of Nepal’s monetary policy. When the banking system is flooded with cash, the interbank rate often falls below the lower bound of this corridor, signaling a breakdown in policy transmission. By using deposit collection instruments, Nepal Rastra Bank effectively mops up the surplus, creating a slight scarcity of funds that pushes the market rates back toward the target levels. This stability is crucial for the broader economy because it provides a predictable environment for both depositors and borrowers. If interest rates are too low, depositors may lose their incentive to save, whereas if they are too high, the cost of borrowing becomes a burden for industrial expansion.
This specific 88 day instrument has a maturity date set for May 24, 2026 (Jestha 10, 2083). On this date, the central bank will return the principal amount along with the accrued interest to the participating banks. This medium term duration allows the central bank to manage liquidity through the remainder of the third quarter of the fiscal year 2082/83. It is a proactive step to ensure that the surge in government spending, which typically occurs toward the end of the fiscal year, does not create an uncontrollable inflationary spike. By locking away 40 billion rupees for nearly three months, the NRB is exerting a stabilizing influence on the money supply, ensuring that the total volume of currency in circulation remains aligned with the country’s economic output targets.
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From a strategic perspective, the current excess liquidity in Nepal’s banking sector is a double edged sword. On one hand, it indicates that banks have ample capacity to fund large scale infrastructure projects and support the growth of small and medium enterprises. On the other hand, the persistent nature of this surplus suggests a lack of confidence or a bottleneck in the credit transmission mechanism. The central bank’s intervention today is a signal to the market that it is closely monitoring these dynamics. While the withdrawal of 40 billion rupees might temporarily reduce the funds available for lending, the NRB believes that maintaining a healthy interest rate floor is more important for long term financial stability than allowing unchecked liquidity to distort market signals.
For individual depositors and small business owners, the central bank’s actions may not have an immediate visible impact on their daily transactions. However, these high level maneuvers are what keep the value of the Nepali rupee stable and ensure that the banking system remains resilient against external shocks. When the central bank successfully manages liquidity, it prevents the formation of asset bubbles in the real estate or stock markets, which are often fueled by cheap and easy credit. By enforcing market discipline through these regular auctions, the NRB is building a more mature financial ecosystem where capital is allocated based on real economic value rather than the mere availability of excess funds.
The transparency of the online bidding system is another critical factor in the success of this operation. By allowing all licensed institutions to participate based on their specific liquidity needs, the central bank ensures a fair distribution of the interest income generated from these deposits. This also provides the central bank with valuable data on which institutions are holding the most surplus cash, allowing for more targeted regulatory oversight in the future. As the year 2082 progresses, the frequency and volume of these liquidity withdrawals will likely serve as a barometer for the overall health of the Nepali economy and the effectiveness of the central bank’s broader monetary objectives.
In conclusion, the decision by Nepal Rastra Bank to withdraw 40 billion rupees through an 88 day deposit auction is a calculated and necessary move to stabilize the nation’s money market. By using a transparent, auction based mechanism, the central bank is fulfilling its mandate to manage liquidity, maintain interest rate stability, and ensure the efficient transmission of monetary policy. As the funds are transferred from commercial vaults to the central bank today, the financial sector moves one step closer to a balanced and sustainable equilibrium. This proactive approach underscores the NRB’s commitment to creating a stable financial environment that supports the long term prosperity of all Nepali citizens during the fiscal year 2082/83 and beyond.
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