The amount of surplus liquidity in the banking system has come down to Rs 13 billion as the extra cash that the central bank had absorbed from banks and financial institutions (BFIs) is not returning to them immediately.
Excess liquidity has shrunk by Rs 67 billion within one and a half months which is very normal, and BFIs should not be worried about it, said central bank officials.
In a bid to reduce the high level of excess liquidity , Nepal Rastra Bank (NRB) had started mopping up cash with a new instrument called deposit collection one and a half months ago. Its maturity period is three months. NRB has absorbed Rs 40 billion through this instrument in the last one and a half months.
Earlier, bankers had been complaining that the cash collected by the central bank through reverse repos was being returned to the economy within a week, and so it was not making any big difference in easing the excess liquidity situation.
Besides using deposit collection, the central bank has absorbed Rs 44.5 billion through reverse repo, but this money has already made its way back to the banking system.
“The deposit collection instrument made a big difference,” said NRB Spokesperson Manamohan Kumar Shrestha. “There is now no need to use instruments to mop up liquidity from BFIs.”
Considering the persistent high liquidity situation, the central bank had introduced the deposit collection instrument under which it can absorb as much liquidity as it wants since it is not required to put up any collateral unlike in the case of reverse repos.
The central bank has also announced through the monetary policy conducting reverse repos with a maturity period of three months and issuing NRB bonds with a maturity period of one year if needed.
“In fact, we were considering introducing NRB bonds having a maturity period of one year at the earliest when surplus liquidity levels reached as high as Rs 80 billion,” said Shrestha. “But the situation has returned to normal within a short period.”
In an indication of excess liquidity heading towards normalcy, interest rates on 90-day treasury bills, deposit collection, reverse repos and inter-bank lending have also gone up.
The coupon rate (interest rate) of 90-day treasury bills had risen to 1.23 percent from 0.01 percent nearly a month ago while the average interest rate on deposit collection climbed to 0.74 percent from 0.69 percent in one month.
Similarly, interest rates on reverse repos went up to 0.36 percent from 0.06 percent during the month preceding the Dashain festival, according to NRB statistics.
According to bankers, interest rates on inter-bank lending have also swelled close to 2 percent from less than 1 percent. However, they still doubt whether the situation will return to normalcy.
“Obviously, the central bank’s mopping up excess cash through deposit collection and reverse repos have contributed to bringing down the level of surplus liquidity ,” said Anil Gyawali, chief executive officer of Nabil Bank. “But we are not sure whether the situation is heading towards normalcy, and we will have to wait for two weeks to see why the amount of surplus liquidity came down massively.”
He added that it remained to be seen whether the high excess liquidity situation in the banking system would continue after the money collected by the central bank returns to the economy when the deposit collection instrument matures. “This will determine in what direction the liquidity situation in the banking sector is heading.”
Usually, lending starts going up after the Dashain and Tihar festivals. Shrestha said that a growth in lending after the festivals could bring the situation to normalcy permanently. But bankers disagree. Gyawali said there were no big projects where large investments could be made.
source: the kathmandu post,7 oct 2014
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Excess liquidity has shrunk by Rs 67 billion within one and a half months which is very normal, and BFIs should not be worried about it, said central bank officials.
In a bid to reduce the high level of excess liquidity , Nepal Rastra Bank (NRB) had started mopping up cash with a new instrument called deposit collection one and a half months ago. Its maturity period is three months. NRB has absorbed Rs 40 billion through this instrument in the last one and a half months.
Earlier, bankers had been complaining that the cash collected by the central bank through reverse repos was being returned to the economy within a week, and so it was not making any big difference in easing the excess liquidity situation.
Besides using deposit collection, the central bank has absorbed Rs 44.5 billion through reverse repo, but this money has already made its way back to the banking system.
“The deposit collection instrument made a big difference,” said NRB Spokesperson Manamohan Kumar Shrestha. “There is now no need to use instruments to mop up liquidity from BFIs.”
Considering the persistent high liquidity situation, the central bank had introduced the deposit collection instrument under which it can absorb as much liquidity as it wants since it is not required to put up any collateral unlike in the case of reverse repos.
The central bank has also announced through the monetary policy conducting reverse repos with a maturity period of three months and issuing NRB bonds with a maturity period of one year if needed.
“In fact, we were considering introducing NRB bonds having a maturity period of one year at the earliest when surplus liquidity levels reached as high as Rs 80 billion,” said Shrestha. “But the situation has returned to normal within a short period.”
In an indication of excess liquidity heading towards normalcy, interest rates on 90-day treasury bills, deposit collection, reverse repos and inter-bank lending have also gone up.
The coupon rate (interest rate) of 90-day treasury bills had risen to 1.23 percent from 0.01 percent nearly a month ago while the average interest rate on deposit collection climbed to 0.74 percent from 0.69 percent in one month.
Similarly, interest rates on reverse repos went up to 0.36 percent from 0.06 percent during the month preceding the Dashain festival, according to NRB statistics.
According to bankers, interest rates on inter-bank lending have also swelled close to 2 percent from less than 1 percent. However, they still doubt whether the situation will return to normalcy.
“Obviously, the central bank’s mopping up excess cash through deposit collection and reverse repos have contributed to bringing down the level of surplus liquidity ,” said Anil Gyawali, chief executive officer of Nabil Bank. “But we are not sure whether the situation is heading towards normalcy, and we will have to wait for two weeks to see why the amount of surplus liquidity came down massively.”
He added that it remained to be seen whether the high excess liquidity situation in the banking system would continue after the money collected by the central bank returns to the economy when the deposit collection instrument matures. “This will determine in what direction the liquidity situation in the banking sector is heading.”
Usually, lending starts going up after the Dashain and Tihar festivals. Shrestha said that a growth in lending after the festivals could bring the situation to normalcy permanently. But bankers disagree. Gyawali said there were no big projects where large investments could be made.
source: the kathmandu post,7 oct 2014
LINK
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