The financial institutions facing problems with disposing excess liquidity have subscribed for the central bank’s latest offering of reverse repo by two times despite the marginal interest.
In the latest round of the seven-day reverse repo, Nepal Rastra Bank (NRB) received bids worth Rs 39.72 billion from 22 financial institutions for the reverse repo worth Rs 19.5 billion. The weighted average reverse repo rate for this round stood at 0.1328 per cent.
As the banks are battling with surplus liquidity, NRB has used reverse repo 16 times since September to absorb the surplus funds from the financial system. Since the beginning of the fiscal year, banks have been struggling with a lull in credit expansion but speedy deposit growth. So far, the central bank has absorbed short-term liquidity worth Rs 250.5 billion in last seven months.
During the reverse repo, financial institutions bid to lend to NRB at quoted rates and amount. NRB pledges government securities in its possession to borrow the quoted amount for a short term — seven to 14 days. In the last round of reverse repo held last week, the weighted average rate stood at 0.17 per cent.
Excess liquidity is supposed to put pressure on inflation and aid capital flight.
NRB governor Dr Yubaraj Khatiwada had called the liquidity excess a ‘fortunate problem’ during the monetary policy’s mid-term review last week. He had expressed hope that the situation will ease to normal in the second half of the fiscal year as government expenditure speeds up. There is about Rs 50 billion of such idle funds at financial institutions due to low credit demand.
source: the himalayan times, 6 march 2014
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In the latest round of the seven-day reverse repo, Nepal Rastra Bank (NRB) received bids worth Rs 39.72 billion from 22 financial institutions for the reverse repo worth Rs 19.5 billion. The weighted average reverse repo rate for this round stood at 0.1328 per cent.
As the banks are battling with surplus liquidity, NRB has used reverse repo 16 times since September to absorb the surplus funds from the financial system. Since the beginning of the fiscal year, banks have been struggling with a lull in credit expansion but speedy deposit growth. So far, the central bank has absorbed short-term liquidity worth Rs 250.5 billion in last seven months.
During the reverse repo, financial institutions bid to lend to NRB at quoted rates and amount. NRB pledges government securities in its possession to borrow the quoted amount for a short term — seven to 14 days. In the last round of reverse repo held last week, the weighted average rate stood at 0.17 per cent.
Excess liquidity is supposed to put pressure on inflation and aid capital flight.
NRB governor Dr Yubaraj Khatiwada had called the liquidity excess a ‘fortunate problem’ during the monetary policy’s mid-term review last week. He had expressed hope that the situation will ease to normal in the second half of the fiscal year as government expenditure speeds up. There is about Rs 50 billion of such idle funds at financial institutions due to low credit demand.
source: the himalayan times, 6 march 2014
LINK
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