Increased deposit withdrawals have resulted in tighter liquidity in the banking sector, pushing up the inter-bank rate to around 8 percent on Tuesday from 2-3 percent one and a half weeks ago.
The inter-bank rate had reached up to 10 percent a few days ago. It dropped marginally on Tuesday as banks received Nepali currency on Tuesday after the central bank purchased foreign exchange worth US$ 49.7 million on Monday.
Banks received cash on Wednesday against the repo (repurchase agreement) the central bank issued on Tuesday. NRB had offered treasury bills worth Rs. 3 billion on Tuesday under the repo. The central bank has issued a repo to inject fresh liquidity into the banking system after a three-month gap.
NRB had stopped issuing a repo since July 15 as the liquidity situation had improved greatly. Bankers have termed the current tighter liquidity as a temporary phenomenon. Sashin Joshi, president of the Nepal Bankers Association, said that liquidity usually becomes tighter during Dashain as deposits are withdrawn in large amounts.
NRB said more than Rs. 4 billion had been withdrawn from commercial banks over the last one week sending bank deposits plunging to Rs. 613 billion from Rs. 617 billion. Earlier, it had been expected that deposits would grow due to an increase in the flow of remittance before the festival.
Commercial banks have been witnessing a decline in total deposits since the beginning of this fiscal year. As of Monday, deposits declined by Rs. 18 billion since the beginning of the fiscal year, said NRB. They stood at Rs. 631 billion in mid-July.
One of the reasons why deposits have not expanded in recent months is slow government expenditure. Joshi said that the banking system could face a liquidity problem again if government expenditure remained irregular due to the absence of a budget. Deposits had grown in the final months of the last fiscal year mainly due to soaring government expenditure despite an acute liquidity crunch in the earlier months.
The tight liquidity in recent days is also reflected in NRB’s not issuing a reverse repo for a month. The central bank has not issued the monetary instrument since Sept. 14 which is issued to absorb liquidity from the banking system. Earlier, NRB had been issuing reverse repos one after another due to excess liquidity in the banking system. NRB officials said that banks had also been taking huge amounts in standing liquidity facility for the last few days. The standing liquidity facility is an urgent liquidity facility that the central bank gives to address pressing liquidity needs among banks.
soruce:ekantipur
The inter-bank rate had reached up to 10 percent a few days ago. It dropped marginally on Tuesday as banks received Nepali currency on Tuesday after the central bank purchased foreign exchange worth US$ 49.7 million on Monday.
Banks received cash on Wednesday against the repo (repurchase agreement) the central bank issued on Tuesday. NRB had offered treasury bills worth Rs. 3 billion on Tuesday under the repo. The central bank has issued a repo to inject fresh liquidity into the banking system after a three-month gap.
NRB had stopped issuing a repo since July 15 as the liquidity situation had improved greatly. Bankers have termed the current tighter liquidity as a temporary phenomenon. Sashin Joshi, president of the Nepal Bankers Association, said that liquidity usually becomes tighter during Dashain as deposits are withdrawn in large amounts.
NRB said more than Rs. 4 billion had been withdrawn from commercial banks over the last one week sending bank deposits plunging to Rs. 613 billion from Rs. 617 billion. Earlier, it had been expected that deposits would grow due to an increase in the flow of remittance before the festival.
Commercial banks have been witnessing a decline in total deposits since the beginning of this fiscal year. As of Monday, deposits declined by Rs. 18 billion since the beginning of the fiscal year, said NRB. They stood at Rs. 631 billion in mid-July.
One of the reasons why deposits have not expanded in recent months is slow government expenditure. Joshi said that the banking system could face a liquidity problem again if government expenditure remained irregular due to the absence of a budget. Deposits had grown in the final months of the last fiscal year mainly due to soaring government expenditure despite an acute liquidity crunch in the earlier months.
The tight liquidity in recent days is also reflected in NRB’s not issuing a reverse repo for a month. The central bank has not issued the monetary instrument since Sept. 14 which is issued to absorb liquidity from the banking system. Earlier, NRB had been issuing reverse repos one after another due to excess liquidity in the banking system. NRB officials said that banks had also been taking huge amounts in standing liquidity facility for the last few days. The standing liquidity facility is an urgent liquidity facility that the central bank gives to address pressing liquidity needs among banks.
soruce:ekantipur
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