29th June 2025, Kathmandu
Nepal Rastra Bank, the central bank of Nepal, has announced it will withdraw NPR 30 billion from the banking system on June 29, 2025. The move aims to control excess liquidity in the financial system. The bank will use a deposit collection instrument to absorb funds from commercial banks and financial institutions.
NRB Liquidity Absorption Policy Tool
Controlling Excess Liquidity
Recently, banks and financial institutions in Nepal have held surplus liquidity. This happened because loan demand has slowed down significantly. As a result, banks keep large amounts of idle cash. This excess liquidity affects interest rates and reduces the effectiveness of monetary policy.
To address this, Nepal Rastra Bank plans to withdraw NPR 30 billion. The withdrawal will help balance liquidity in the banking sector. It will also support the central bank’s goal of maintaining price stability and controlling inflation.
Auction Details And Eligible Participants
The withdrawal will occur through a deposit collection instrument auction. The auction is scheduled for June 29 at 3 PM. Only licensed commercial banks and financial institutions can participate. These include all institutions classified as commercial banks and development banks by the central bank.
Participants can submit bids in multiples of NPR 100 million for the minimum amount. For maximum amounts, bids must be in multiples of NPR 50 million. The total bids cannot exceed NPR 30 billion.
The auction will use a competitive bidding system. Banks may submit multiple bids at different interest rates. This system allows market forces to determine the deposit interest rate.
Maturity And Interest Payments
The deposit collection instrument will mature after 63 days. The principal and interest will be paid on August 31. This timeline provides banks with a short-term liquidity management option. Meanwhile, it helps the central bank temporarily absorb excess funds.
Current Banking Sector Situation
Loan demand has declined in Nepal’s banking sector recently. Businesses and individuals have reduced borrowing due to economic uncertainty and higher interest rates. Consequently, banks have excess funds.
Many banks park these idle funds with the central bank at interest rates near 3%. This limits their ability to lend and lowers profitability. Excess liquidity can also hamper Nepal’s economic recovery.
Nepal Rastra Bank’s withdrawal aims to encourage banks to increase lending. It also helps restore balance in the money market.
Monetary Policy Impact
Withdrawing funds is a key monetary policy tool. It helps regulate the money supply and interest rates. By absorbing excess liquidity, the central bank aims to prevent inflation.
The auction promotes better liquidity management among banks. It signals the need for efficient use of resources. Competitive bidding ensures interest rates are set by market forces. This improves the transmission of monetary policy.
Looking Ahead
Nepal Rastra Bank will continue monitoring liquidity and economic trends. It may use further tools like open market operations and future deposit auctions. These measures aim to maintain a stable financial system.
A balanced banking system will support sustainable economic growth in Nepal. The central bank’s proactive steps will benefit banks, businesses, and consumers alike.
For more:- NRB Liquidity Absorption Policy Tool