KATHMANDU: In a strategic move to counter the surge in liquidity within the banking system, Nepal Rastra Bank (NRB), the apex bank of Nepal, has announced plans to absorb 10 billion rupees on December 19th.

The NRB’s Monetary Management Department, via an official statement, unveiled its intention to curtail the excess liquidity by employing deposit collection instruments through the banking system.

Banks eager to park their surplus funds have been invited to initiate the process by submitting applications, setting a minimum deposit threshold of 100 million rupees. A substantial portion of at least 50 million rupees is set to be eligible for absorption through the deposit collection instrument auctions.

Despite the evident surplus liquidity, NRB has maintained a consistent stance of absorbing excess funds through the Monetary Management Department’s deposit collection instruments. The NRB had previously disclosed plans to introduce perpetual deposit collection facilities at a reduced rate within the interest rate corridor, aligning with the fiscal year’s ongoing monetary policy.

However, the implementation of this system remains pending due to the ongoing procedural requirements, with NRB signaling its activation slated for the third quarter of the current fiscal year. Concurrently, the first quarterly review of the monetary policy upheld the deposit collection rate at 3%, a reduction from the previously mentioned 1.5%, as reaffirmed by NRB’s official announcement.

NRB remains resolute in its aim to absorb excess liquidity should the deposit collection rate consistently fall below the 3% threshold. Presently, despite the surplus liquidity, banks have already deposited a staggering 62.5 billion rupees with the NRB.

Moreover, on December 17th, NRB successfully absorbed 10 billion rupees from the banking system. Despite the full maturity of deposit collection instruments worth 20 billion rupees, an additional 10 billion rupees’ worth of instruments remain available for auction. Impressively, 12 banks submitted proposals amounting to 28 billion rupees across 60 applications for the 10 billion rupee deposit. The proposed interest rates ranged between a maximum of 2.8999% and a minimum of 2.2231%, averaging at 2.4784%, as officially reported by NRB.