SAGAR GHIMIRE
With liquidity problem showing no sign of subsiding, Nepal Rastra Bank (NRB) is collecting deposit of Rs 10 billion from different banks and financial institutions (BFIs).
The central regulatory bank is absorbing excess liquidity from the banking system through the new monetary instrument called ´deposit auction´ after its short-term instruments, including reverse repo, failed to address the problem.
This is the third time that the central bank is mopping up liquidity from BFIs through this new instrument. NRB has already collected Rs 30 billion over the past two months by holding deposit auctions two times.
Unlike the reverse repo, which is a short-term monetary operation having maturity period of a week, deposit auction has a maturity period of 90 days. The interest rates are fixed through the auction“
"We have decided to collect deposit as liquidity surplus is still gripping the BFIs. After absorbing another Rs 10 billion, the problem will be resolved to some exte”t," NRB Spokesperson Manmohan Kumar Shrestha told Republica.
According to NRB, liquidity surplus in the banking system currently stands at Rs 23 billio“. "The liquidity surplus was becoming a serious problem. So we introduced this instrument, which has given a relief to the BFIs to some exte”t," Shrestha said, addin“, "Since a huge amount of the cash has already been absorbed, we will decide on issuing another deposit call after observing the liquidity situati”n."
Shrestha also said BFIs need to increase lending rather than depend on open market operations of the central ban“. "BFIs should focus on increasing their investment so that the government projected economic growth can be m”t," he added.
However, a senior official of NRB told Republica said that they had been observing ´irrational behavior´ among BFIs while quoting interest rates in the deposit auctio“. "NRB decided to introduce this instrument with a belief that all stakeholders should bear the probl”m," the official said, seeking anonymit“. "However, looking at interest rates quoted by BFIs and the interest rate of treasury bills of the same date, we fell that BFIs are working in collusion to manipulate the mark”t," the official told Republica seeking anonymity.
In the last deposit auction held on September 17, 0.7 percent was the highest interest rate quoted by BFIs. Similarly, the lowest was 0.29 percent. NRB had fixed averaged weighted interest rate of 0.585 percent in the auction. The interest rate of 91-day Treasury Bill of September 16 was 0.183 percent.
The senior NRB official also said the central bank was cautiously watching the developmen“. "NRB may not issue such instruments in the futu”e," the official added.
However, bankers dismiss accusation leveled by the NRB official. They say investment on instruments is a compulsion for them rather than a choic“. "Yields from investment in instrument do not meet our costs involved in the bidding process.
The interest rate may fluctuate with the liquidity situation in the mark”t," Upendra Poudyal, vice president of Nepal Bankers Association (NBA), told Republic“. "Charges of BFIs manipulating interest rates are basele”s."
Bhupendra Pandey, treasury department chief of Rastriya Banijya Bank Ltd, echoed Poudyal.“
"Considering high competition in the market, there is not even a small room for market manipulati”n," he added.
source: republica,23 sept 2014
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With liquidity problem showing no sign of subsiding, Nepal Rastra Bank (NRB) is collecting deposit of Rs 10 billion from different banks and financial institutions (BFIs).
The central regulatory bank is absorbing excess liquidity from the banking system through the new monetary instrument called ´deposit auction´ after its short-term instruments, including reverse repo, failed to address the problem.
This is the third time that the central bank is mopping up liquidity from BFIs through this new instrument. NRB has already collected Rs 30 billion over the past two months by holding deposit auctions two times.
Unlike the reverse repo, which is a short-term monetary operation having maturity period of a week, deposit auction has a maturity period of 90 days. The interest rates are fixed through the auction“
"We have decided to collect deposit as liquidity surplus is still gripping the BFIs. After absorbing another Rs 10 billion, the problem will be resolved to some exte”t," NRB Spokesperson Manmohan Kumar Shrestha told Republica.
According to NRB, liquidity surplus in the banking system currently stands at Rs 23 billio“. "The liquidity surplus was becoming a serious problem. So we introduced this instrument, which has given a relief to the BFIs to some exte”t," Shrestha said, addin“, "Since a huge amount of the cash has already been absorbed, we will decide on issuing another deposit call after observing the liquidity situati”n."
Shrestha also said BFIs need to increase lending rather than depend on open market operations of the central ban“. "BFIs should focus on increasing their investment so that the government projected economic growth can be m”t," he added.
However, a senior official of NRB told Republica said that they had been observing ´irrational behavior´ among BFIs while quoting interest rates in the deposit auctio“. "NRB decided to introduce this instrument with a belief that all stakeholders should bear the probl”m," the official said, seeking anonymit“. "However, looking at interest rates quoted by BFIs and the interest rate of treasury bills of the same date, we fell that BFIs are working in collusion to manipulate the mark”t," the official told Republica seeking anonymity.
In the last deposit auction held on September 17, 0.7 percent was the highest interest rate quoted by BFIs. Similarly, the lowest was 0.29 percent. NRB had fixed averaged weighted interest rate of 0.585 percent in the auction. The interest rate of 91-day Treasury Bill of September 16 was 0.183 percent.
The senior NRB official also said the central bank was cautiously watching the developmen“. "NRB may not issue such instruments in the futu”e," the official added.
However, bankers dismiss accusation leveled by the NRB official. They say investment on instruments is a compulsion for them rather than a choic“. "Yields from investment in instrument do not meet our costs involved in the bidding process.
The interest rate may fluctuate with the liquidity situation in the mark”t," Upendra Poudyal, vice president of Nepal Bankers Association (NBA), told Republic“. "Charges of BFIs manipulating interest rates are basele”s."
Bhupendra Pandey, treasury department chief of Rastriya Banijya Bank Ltd, echoed Poudyal.“
"Considering high competition in the market, there is not even a small room for market manipulati”n," he added.
source: republica,23 sept 2014
LINK
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