June 23: After the inter-bank interest rate fell below the target, Nepal Rastra Bank (NRB) released reverse repo for the second time to mop excess liquidity from the market. On Thursday, the central bank mopped excess liquidity worth Rs 10 billion through reverse repo of seven days.

On Thursday, nine banks and financial institutions filed 59 applications to bid for the reverse repo worth Rs 26.33 billion. The NRB informed that the BFIs made a maximum bid of 3.24 percent and a minimum bid of 2.73 percent for the interest rate and the average interest rate was maintained at 3.01 percent.

After raising Rs 28.35 billion through reverse repo on July 20, 2021, and Rs 31.65 billion through deposit collection on July 29 and August 6 last year, the central bank mopped Rs 5 billion from the market through reverse repo for the first time in the current fiscal year (FY) on January 26.

After the liquidity crisis in the banking system eased due to the increase in bank deposits, the central bank has not released liquidity through instruments including repo since April.

The last time the central bank issued repo (repurchase agreement) was on April 6 when it issued repo worth Rs 20 billion with a maturity period of 14 days.

Similarly, the number of banks taking overnight repo and Permanent Liquidity Facility (SLF) is also decreasing. Banks have not taken overnight repo facility since April 26 and SLF facility since April 30.

After the liquidity in banks and financial institutions increased and the interbank interest rate fell below the monetary policy target, the central bank withdrew liquidity from the market.

In the monetary policy, there is a provision to issue repo/reverse repo if the average interest rate of interbank transactions is lower than the policy rate by more than 2 percentage points. The average interest rate of interbank transactions, which has been continuously falling since May, dropped to 4 percent on Tuesday. Recently, with the improvement in remittance flow, deposits in banks have increased, but due to high interest rates and lack of economic activities, loans have not been disbursed. Due to this, the interest rates of treasury bills, development bonds, interbank transactions are continuously decreasing.