16th February 2025, kathmandu
Nepal Rastra Bank (NRB) will withdraw NPR 40 billion from the banking system today. This move aims to control the excess liquidity in the market, which has been growing steadily. The central bank has been using various tools to absorb this liquidity since the start of the fiscal year 2024/25
NRB NPR 40 Billion Withdrawal
Deposit Collection Auction Mechanism
NRB will use a 21-day deposit collection auction to withdraw the funds. The principal and interest for the deposit will be paid on Falgun 25. Banks and financial institutions will participate in the bidding process, which will set the interest rate for the deposits. Only Class ‘A’, ‘B’, and ‘C’ financial institutions licensed by NRB can take part in the auction.
Auction Details and Participation Rules
Bidders must offer a minimum of NPR 10 crore, and the amounts should be in multiples of NPR 5 crore. NRB will allocate the total amount of NPR 40 billion based on these bids. The interest rate will be determined by the auction, where financial institutions will submit their offers.
The move comes as NRB continues its efforts to manage liquidity and maintain financial stability in the economy. The central bank’s use of this auction mechanism reflects its approach to controlling the supply of money in the banking system.
Impact of Excess Liquidity
The banking system has experienced excess liquidity in recent months. This is primarily due to weak credit demand from the private sector. As a result, financial institutions are holding large amounts of cash, with interest rates on deposits falling to as low as 3%.
Financial analysts note that the lack of demand for loans has pushed banks to park their funds with NRB instead of extending credit to borrowers. The central bank’s withdrawal of funds is intended to help reduce this excess liquidity and stabilize the market.
NRB’s Ongoing Measures
NRB has been using a combination of tools to address liquidity issues. These measures include the standing deposit facility and the deposit collection auction. By absorbing excess liquidity, NRB aims to prevent inflation and stabilize interest rates.
Despite NRB’s efforts, credit demand remains low, which poses challenges for the banking sector. However, NRB is prepared to continue implementing measures if the situation does not improve. The central bank will keep monitoring liquidity levels and adjust its policies as necessary.
Future Outlook
The 21-day deposit collection auction will end on Falgun 25, with NRB making payments to the participating institutions. As the economy and banking sector evolves, NRB’s actions will play a crucial role in maintaining financial stability and fostering a healthy lending environment.
For more: NRB NPR 40 Billion Withdrawal