Rs 1,292 billion to central bank, Rs 35 billion to be drawn into the financial system

Kathmandu. Due to excess liquidity in the financial system, the Rastra Bank has accumulated Rs 12.92 trillion. The central bank has absorbed excess liquidity of banks and financial institutions through deposit collection, Rastra Bank bonds and permanent deposit facility.

The central bank draws or transfers the liquidity of the financial system to manage the liquidity of the financial system and the unnatural fluctuations of short-term interest rates. The central bank controls the inter-bank rate through liquidity management.

The central bank on Monday issued a deposit collection tool worth Rs 35 billion after the financial system became more liquidity. The continuous improvement in remittance inflow has also increased liquidity in the financial system. In addition, the demand for credit in the financial sector due to the sluggish economy has also helped to increase liquidity.

According to the Nepal Rastra Bank, there is about Rs 56 billion liquidity in the financial system as of last Wednesday. However, the central bank has issued a deposit collection tool to redraw the money kept by banks and financial institutions in the central bank through permanent deposits and deposit collections.

In the Deposit Collection Instrument, the central bank allocates money to the banks and financial institutions that demand low interest rates. The central bank draws money from the market through instruments such as deposit collection, permanent deposit facility etc. for the liquidity position of the financial system and interbank interest rate management. Similarly, when the liquidity situation in the system is tight, it sends money to the system through a permanent liquidity facility, a repo.

When the central bank transfers liquidity to the financial system, it charges interest at the bank rate, which is the upper limit of the interest rate corridor, while when it draws liquidity, it pays interest equal to the lower limit of the corridor, the fixed deposit facility rate. Currently, the bank rate is 5.75 and the fixed deposit facility rate is 2. It is 75 percent.