KATHMANDU: Nepal Rastra Bank (NRB) today floated an instrument called
‘term deposit’ to mop up Rs five billion from the banking sector, as
portion of excess liquidity in banks and financial institutions (BFIs)
has once again started growing.
The securities were oversubscribed by over two times, drawing bids worth Rs 10.30 billion from a total of 18 commercial banks, a high-ranking NRB official told The Himalayan Times.
The securities, which will be issued to the banks on Friday, carry weighted average interest rate of 0.8645 per cent. The weighted average interest rate on the same securities issued on January 19 stood at 0.6937 per cent.
Although the central monetary authority has already used the instrument nine times since the beginning of this fiscal year in mid-July to absorb Rs 80 billion from the banking sector, it had recently reduced the frequency of floating such securities after some of the BFIs reported tight liquidity position.
“But again the pressure of excess liquidity seems to be mounting on BFIs, which is why we had to use the term deposit instrument to mop up excess liquidity,” the NRB official said.
When the fiscal year began, the banking sector had excess liquidity of around Rs 100 billion. This was largely because of huge inflow of remittance income and government’s inability to spend money piled up in its treasury.
NRB then aggressively started mopping up the liquidity through auctions of term deposit and reverse repo instruments to prevent surplus funds from flowing into unproductive sectors, like stock and real estate markets, which tend to drive up asset prices and build inflationary pressure.
In first six months of current fiscal alone, NRB issued Rs 245.50 billion worth of reverse repo and another Rs 75 billion worth of term deposit instruments.
Then by the end of first seven months of fiscal, most of the excess liquidity in the banking sector disappeared.
Soon inter-bank lending rates, which stood at less than one per cent for over one-and-a-half years, shot up to as high as five per cent. This indicated some of the banks were facing cash crunch and were borrowing from other institutions, which raised the spectre of another round of credit crisis surfacing in the banking sector.
At that time, funds started depleting not only due to use of various instruments by NRB to mop up liquidity but also because of deceleration in remittance inflow and rise in credit demand.
But the situation has reversed again and the banking sector is reported to have excess liquidity to the tune of Rs 41 billion, the NRB official said.
The banking sector is once again sitting atop a big chunk of idle funds because of maturity of term deposit instruments worth Rs 15 billion issued between December 3 and December 10. Term deposit allows commercial banks, development banks and finance companies to park their money at NRB for a period of three months at interest rates fixed through auction.
“Because of maturity of these instruments, Rs 15 billion has entered into the coffers of BFIs in the last two weeks,” the NRB official said. “Also, banks have sold foreign currency worth Rs eight to nine billion to NRB in the last few days to book profit from sliding value of domestic currency, which also raised liquidity level.”
Nepali currency, which stood at below Rs 100 vis-à-vis US dollar since last week of February, once again crossed Rs 100 mark on March 10. The exchange rate was Rs 100.76 per dollar today.
Amidst all this, public spending has not gone up in a desired manner, which could increase demand for loans. Because of this, treasury surplus stood at a whopping Rs 81 billion as of Friday.Issue Term deposits issued so far this fiscal
Date Issued Amount Bid Amount Weighted Average
Interest Rate
Aug 20 Rs 20bn Rs 38.15bn 0.6911
Sept 17 Rs 10bn Rs 29.40bn 0.585
Sept 24 Rs 10bn Rs 16.70bn 0.7488
Dec 3 Rs 5bn Rs 29.15bn 0.2072
Dec 5 Rs 5bn Rs 27.15bn 0.1655
Dec 10 Rs 5bn Rs 11.85bn 0.2456
Jan 7 Rs 10bn Rs 28.50bn 0.1561
Jan 12 Rs 10bn Rs 20.60bn 0.2479
Jan 19 Rs 5bn Rs 9.45bn 0.6937
source: the himalayan times,13 march 2015
LINK
The securities were oversubscribed by over two times, drawing bids worth Rs 10.30 billion from a total of 18 commercial banks, a high-ranking NRB official told The Himalayan Times.
The securities, which will be issued to the banks on Friday, carry weighted average interest rate of 0.8645 per cent. The weighted average interest rate on the same securities issued on January 19 stood at 0.6937 per cent.
Although the central monetary authority has already used the instrument nine times since the beginning of this fiscal year in mid-July to absorb Rs 80 billion from the banking sector, it had recently reduced the frequency of floating such securities after some of the BFIs reported tight liquidity position.
“But again the pressure of excess liquidity seems to be mounting on BFIs, which is why we had to use the term deposit instrument to mop up excess liquidity,” the NRB official said.
When the fiscal year began, the banking sector had excess liquidity of around Rs 100 billion. This was largely because of huge inflow of remittance income and government’s inability to spend money piled up in its treasury.
NRB then aggressively started mopping up the liquidity through auctions of term deposit and reverse repo instruments to prevent surplus funds from flowing into unproductive sectors, like stock and real estate markets, which tend to drive up asset prices and build inflationary pressure.
In first six months of current fiscal alone, NRB issued Rs 245.50 billion worth of reverse repo and another Rs 75 billion worth of term deposit instruments.
Then by the end of first seven months of fiscal, most of the excess liquidity in the banking sector disappeared.
Soon inter-bank lending rates, which stood at less than one per cent for over one-and-a-half years, shot up to as high as five per cent. This indicated some of the banks were facing cash crunch and were borrowing from other institutions, which raised the spectre of another round of credit crisis surfacing in the banking sector.
At that time, funds started depleting not only due to use of various instruments by NRB to mop up liquidity but also because of deceleration in remittance inflow and rise in credit demand.
But the situation has reversed again and the banking sector is reported to have excess liquidity to the tune of Rs 41 billion, the NRB official said.
The banking sector is once again sitting atop a big chunk of idle funds because of maturity of term deposit instruments worth Rs 15 billion issued between December 3 and December 10. Term deposit allows commercial banks, development banks and finance companies to park their money at NRB for a period of three months at interest rates fixed through auction.
“Because of maturity of these instruments, Rs 15 billion has entered into the coffers of BFIs in the last two weeks,” the NRB official said. “Also, banks have sold foreign currency worth Rs eight to nine billion to NRB in the last few days to book profit from sliding value of domestic currency, which also raised liquidity level.”
Nepali currency, which stood at below Rs 100 vis-à-vis US dollar since last week of February, once again crossed Rs 100 mark on March 10. The exchange rate was Rs 100.76 per dollar today.
Amidst all this, public spending has not gone up in a desired manner, which could increase demand for loans. Because of this, treasury surplus stood at a whopping Rs 81 billion as of Friday.Issue Term deposits issued so far this fiscal
Date Issued Amount Bid Amount Weighted Average
Interest Rate
Aug 20 Rs 20bn Rs 38.15bn 0.6911
Sept 17 Rs 10bn Rs 29.40bn 0.585
Sept 24 Rs 10bn Rs 16.70bn 0.7488
Dec 3 Rs 5bn Rs 29.15bn 0.2072
Dec 5 Rs 5bn Rs 27.15bn 0.1655
Dec 10 Rs 5bn Rs 11.85bn 0.2456
Jan 7 Rs 10bn Rs 28.50bn 0.1561
Jan 12 Rs 10bn Rs 20.60bn 0.2479
Jan 19 Rs 5bn Rs 9.45bn 0.6937
source: the himalayan times,13 march 2015
LINK
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