2nd March 2025, Kathmandu
Nepal Rastra Bank (NRB) will begin withdrawing Rs. 25 billion in excess liquidity from the banking system today. The central bank plans to use the call money auction (Bolakabol) method for this process.
NRB Rs 25 Billion Liquidity Auction
This action is designed to control the surplus money currently circulating in the market. The move aims to help regulate the liquidity levels within the financial system.
Reasons Behind the Withdrawal
Banks have failed to meet the expected growth in investment, leading to excess liquidity within the financial system. As a result, NRB has been taking measures to regularly withdraw excess liquidity to maintain balance in the market. The central bank believes this step will help manage the economy and control inflation.
Recent Policy Adjustments
In last week’s Monetary Policy Review, NRB increased the investment limit for banks in Non-Deliverable Forward (NDF) contracts. This change allows banks to invest an additional Rs. 25 to 30 billion, providing them with an alternative investment route. This move is expected to offer some relief to banks by providing more investment opportunities and reducing liquidity pressures.
Details of the Current Auction
The liquidity withdrawal will occur through a 21-day term auction under the Bolakabol method. On 13th Falgun (February 25, 2025), NRB introduced a similar tool to raise Rs. 25 billion through deposit collection. However, only Rs. 9.8 billion worth of bids were received, indicating lower participation from the banks. The average interest rate for this auction has been set at 3%.
Managing Economic Stability
This step is part of NRB’s ongoing effort to maintain economic stability by controlling the flow of money in the market. By tightening liquidity, the central bank aims to balance inflation, interest rates, and overall economic growth. This measure also encourages banks to maintain proper investment and lending activities.
Future Steps and Proposals
NRB is inviting proposals from banks and financial institutions to participate in this liquidity absorption process. By withdrawing Rs. 25 billion, the central bank seeks to ensure that the banking system operates smoothly and adheres to the required investment norms. The move is expected to continue managing the money supply and stabilizing the economy in the coming months.
In conclusion, NRB’s proactive measures reflect its commitment to controlling inflation and stabilizing the financial system. By addressing liquidity concerns and offering alternative investment opportunities, the central bank is working to ensure long-term economic stability for Nepal.
For more: NRB Rs 25 Billion Liquidity Auction