Nepal Rastra Bank (NRB) has planned to launch a series of instruments to mop up excess liquidity from the market and deposit collection is the first on its list. The move is in line with the monetary policy for the current fiscal year which states that deposit collection, bond issuance and reverse repos with a longer maturity period will be conducted to remove extra cash from the banking system.
Under the deposit collection scheme, the central bank announces that it will collect cash from banks and financial institutions (BFIs) and they make deposits through a competitive bidding process. NRB will collect deposits from banks quo-ting the lowest interest rate.
NRB will make a list of the banks submitting bids in response to its deposit collection notice in ascending order, with the bank quoting the lowest interest rate at the top and the bank quoting the highest rate at the bottom.
It then decides the cut-off interest rate as per the amount of cash it wishes to collect. The banks are paid interest as per their bids, said an NRB official.
Unlike in reverse repo, NRB will not issue treasury bills or bonds to collect deposits from BFIs suffering from excess liquidity. “Since it is necessary to put up collateral to conduct a reverse repo, we have not been able to absorb as much liquidity as we would have liked to,” said an NRB official. “For this reason, we are introducing this instrument.”
The official added they planned to conduct a deposit collection since excess liquidity had continued to prevail in the banking system.
NRB officials said they would be able to collect more excess cash with banks through deposit collection as there would be virtually no limitations. This is because the central bank will not be bound by the quantity of treasury bills or bonds.
The central bank has been conducting reverse repos with an expiry period of a week which banks say are not much effective in removing excess liquidity from the market.
In response, NRB has announced it will be conducting reverse repos having a maturity period of up to three months. “This instrument will be introduced in the second phase after the deposit collection option,” said the NRB official.
The banking system has excess liquidity amounting to around Rs 60 billion.
source: the kathmandu post,28 july 2014
LINK
Under the deposit collection scheme, the central bank announces that it will collect cash from banks and financial institutions (BFIs) and they make deposits through a competitive bidding process. NRB will collect deposits from banks quo-ting the lowest interest rate.
NRB will make a list of the banks submitting bids in response to its deposit collection notice in ascending order, with the bank quoting the lowest interest rate at the top and the bank quoting the highest rate at the bottom.
It then decides the cut-off interest rate as per the amount of cash it wishes to collect. The banks are paid interest as per their bids, said an NRB official.
Unlike in reverse repo, NRB will not issue treasury bills or bonds to collect deposits from BFIs suffering from excess liquidity. “Since it is necessary to put up collateral to conduct a reverse repo, we have not been able to absorb as much liquidity as we would have liked to,” said an NRB official. “For this reason, we are introducing this instrument.”
The official added they planned to conduct a deposit collection since excess liquidity had continued to prevail in the banking system.
NRB officials said they would be able to collect more excess cash with banks through deposit collection as there would be virtually no limitations. This is because the central bank will not be bound by the quantity of treasury bills or bonds.
The central bank has been conducting reverse repos with an expiry period of a week which banks say are not much effective in removing excess liquidity from the market.
In response, NRB has announced it will be conducting reverse repos having a maturity period of up to three months. “This instrument will be introduced in the second phase after the deposit collection option,” said the NRB official.
The banking system has excess liquidity amounting to around Rs 60 billion.
source: the kathmandu post,28 july 2014
LINK
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