Nepali banks grappling with excess liquidity have oversubscribed the central bank’s latest bout of reverse repo by four times.Financial institutions have bid for securities worth Rs 42 billion for the reverse repo held by Nepal Rastra Bank (NRB) worth Rs 10 billion. “We received sealed bids from 26 financial institutions amounting to Rs 42 billion,” said an official at NRB.
Last week, NRB had held a reverse repo for Rs five billion which received a bid for up to Rs 10 billion. The reverse repo rate this time was fixed at 0.06 per cent while last week’s reverse repo rate was fixed at 0.08 per cent.
Commercial banks alone are sitting on Rs 60 billion worth of investible funds. This auction allows financial institutions to dispose some of the idle funds in interest bearing instrument.
Reverse repo refers to the central bank accepting deposits from banks against the collateral of securities with the central bank at a certain rate. Banks will lend to NRB at the fixed rate following the bid against the collateral of government securities with the central bank, for seven days. NRB will accept the bid from the banks that offer to give money at lowest rate possible.
“To prevent excess liquidity driving down interest rates, we decided to seek reverse repo,” said a central bank official, adding, “Although low interest rate is desirable for credit expansion it might drive out deposits from banks to other semi-formal channels.” Back in fiscal year 2010-11, NRB had conducted reverse repo worth Rs 19 billion during the first two months of the fiscal year.
NRB’s move to restart reverse repo to absorb excess liquidity from the banking system came in to counter possible inflation.
The increased money supply due to higher amount of disposable money at banks ran the risk of driving up the prices of commodities due to cheaper credit. Moreover, since this period is pre-Dashain time and the dollar has appreciated, there is a risk of prices of everything skyrocketing.
“Though reverse repo does mop up liquidity, the amount and period is less than market expectations,” said the deputy CEO of Sanima Bank Bhuvan Dahal.
Since the beginning of the fiscal year till last Friday, deposits at commercial banks have increased by five per cent while lending has grown by two per cent. At present, banks are handling deposits worth Rs 1024 billion and have disbursed loans worth Rs 758 billion, according to Nepal Bankers’ Association.
“We expect better utilisation of loans in the coming month to cover import payments. After mid-July, both loans and deposits have been growing at a slow pace though deposits growth is slightly better,” said Dahal. The surplus liquidity at banks has even brought down interbank lending rate to 0.25 per cent in last couple of days.
source: the himalayan times,11 Sep 2013
Last week, NRB had held a reverse repo for Rs five billion which received a bid for up to Rs 10 billion. The reverse repo rate this time was fixed at 0.06 per cent while last week’s reverse repo rate was fixed at 0.08 per cent.
Commercial banks alone are sitting on Rs 60 billion worth of investible funds. This auction allows financial institutions to dispose some of the idle funds in interest bearing instrument.
Reverse repo refers to the central bank accepting deposits from banks against the collateral of securities with the central bank at a certain rate. Banks will lend to NRB at the fixed rate following the bid against the collateral of government securities with the central bank, for seven days. NRB will accept the bid from the banks that offer to give money at lowest rate possible.
“To prevent excess liquidity driving down interest rates, we decided to seek reverse repo,” said a central bank official, adding, “Although low interest rate is desirable for credit expansion it might drive out deposits from banks to other semi-formal channels.” Back in fiscal year 2010-11, NRB had conducted reverse repo worth Rs 19 billion during the first two months of the fiscal year.
NRB’s move to restart reverse repo to absorb excess liquidity from the banking system came in to counter possible inflation.
The increased money supply due to higher amount of disposable money at banks ran the risk of driving up the prices of commodities due to cheaper credit. Moreover, since this period is pre-Dashain time and the dollar has appreciated, there is a risk of prices of everything skyrocketing.
“Though reverse repo does mop up liquidity, the amount and period is less than market expectations,” said the deputy CEO of Sanima Bank Bhuvan Dahal.
Since the beginning of the fiscal year till last Friday, deposits at commercial banks have increased by five per cent while lending has grown by two per cent. At present, banks are handling deposits worth Rs 1024 billion and have disbursed loans worth Rs 758 billion, according to Nepal Bankers’ Association.
“We expect better utilisation of loans in the coming month to cover import payments. After mid-July, both loans and deposits have been growing at a slow pace though deposits growth is slightly better,” said Dahal. The surplus liquidity at banks has even brought down interbank lending rate to 0.25 per cent in last couple of days.
source: the himalayan times,11 Sep 2013
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