Nepal Rastra Bank (NRB) is issuing reverse repo worth Rs 10 billion on Wednesday to mop up excess liquidity in the banking sector. Reverse repo is a monetary instrument, under which the central bank sells treasury bills to banks and financial institutions (BFIs) to absorb their cash for a certain period. The reverse repo will have a one-week maturity period, which means BFIs purchasing the treasury bills should give them back to the NRB in return of cash with a certain interest amount. It is the third time that the central bank is issuing reverse repo in the last two weeks as the banking system has been witnessing more than required liquidity in recent days. In last two occasions, the NRB issued reverse repo worth Rs 5 billion and Rs 10 billion, respectively. However, this reverse repo will be the fourth intervention from the central bank as the NRB also did outright sale of one-month treasury bills worth Rs 8.5 billion last week. This means the central bank has already mopped up Rs 23.5 billion, of which Rs 15 billion has come back to the banking system. “The NRB has been intervening in order to discourage banks and financial institutions from reducing interest rates particularly on deposits as a result of excess liquidity,” said an NRB official. Excess liquidity means idle funds with BFIs in absence of investment opportunities. And, reverse repo gives BFIs an investment opportunity. According to the NRB, the banking system currently has excess liquidity worth Rs 50 billion. Bankers have attributed this excess liquidity to increased remittance before Dashain and migrant workers sending money amid strong US dollar. But banks are finding it hard to get borrowers of loans in recent days. Banks willing to purchase treasury bills at an interest rate as low as 0.025 percent suggests how eager they are to utilize their extra funds. Bankers have complained they were compelled to accept negligible returns from the treasury bills instead of keeping the fund idle.
Posted on: Wed, 25 Sep 2013 05:48:59 +0000
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