22th January 2025, Kathmandu
Nepal Rastra Bank (NRB) will withdraw NPR 90 billion from the banking system today, January 22, 2025 (Magh 9, 2081).
NRB’s Liquidity Management Strategy
This move is part of NRB’s effort to control excess liquidity. The central bank has been using deposit collection tools to absorb surplus funds.
Auction to Collect Funds
NRB will hold an auction at 2:00 PM today. Banks and financial institutions can submit bids ranging from NPR 10 million to NPR 50 million. The remaining funds will be distributed based on the bids. The auction will set a fixed interest rate. Institutions may also submit multiple bids with different interest rates.
Eligibility for Participation
Only banks and financial institutions that are classified under categories ‘A’, ‘B’, and ‘C’ by Nepal Rastra Bank are eligible to participate in the auction.
These classifications are based on the institution’s financial stability and regulatory compliance, ensuring that only qualified entities take part in the process.
21-Day Maturity for Funds
The deposit collection tool being used by Nepal Rastra Bank will have a maturity period of 21 days. After this period, the principal amount along with the accrued interest will be paid back to the participating banks and financial institutions.
The payment, which includes both the principal and interest, will be made on February 12, 2025, marking the completion of the 21-day term.
Liquidity Management Response
NRB is withdrawing funds due to limited loan demand, which has led to excess liquidity. Banks have had to deposit funds with the central bank at interest rates below 3 percent.
Ongoing Liquidity Withdrawal
Since the start of the fiscal year 2024/2025, NRB has been steadily withdrawing liquidity. It has used permanent deposit facilities and other tools like today’s auction to manage the money supply.
Stabilizing the Financial System
Withdrawing NPR 90 billion will help stabilize the banking system. It will ensure better distribution of liquidity. The interest rates set in the auction will influence the level of participation, helping NRB maintain liquidity balance.
For more: NRB’s Liquidity Management Strategy
