July 5: The reverse repo issued by Nepal Rastra Bank (NRB) has received more applications than the demand put forth by the central bank. NRB issued bids for reverse repo on Tuesday to mop excess liquidity from the market. NRB received application worth Rs 28.80 billion for reverse repo worth Rs 20 billion.

In Tuesday's reverse repo, 11 banks and financial institutions submitted 61 bids in which the maximum interest rate was 5.37 percent, the minimum interest rate was 4.49 percent interest rate, and the average interest rate has been maintained at 5.05 percent.

This is the third reverse repo issued in the current fiscal year. NRB had issed reverse repo worth Rs 5 billion in the month of Magh (mid-January to mid-February) of the current fiscal year, and Rs 23.10 billion on June 22 and June 25.

In the monetary policy, there is a provision to issue repo/reverse repo if the average interest rate of interbank transactions is more than 2 percentage points lower than the policy rate. Currently, the policy rate is set at 7 percent.

With high liquidity in the financial system, the interest rate of interbank transactions fell to 3.42 percent on Sunday. Until Sunday, banks and financial institutions have collected Rs 561.3 billion deposits and have invested Rs 4862 billion loans.

The average credit-to-deposit ratio (CD ratio) of banks has also fallen to 83.47 percent due to lack of credit flow compared to the increase in deposit collection.

Banks have the ability to provide loans of more than Rs 350 billion according to the provision of the central bank under which they can extend loans by maintaining a CD ratio of up to 90 percent. Lately, despite the ease in liquidity in banks, they have not been able to extend credit, so they are focusing on short-term investments, including government bonds. As a result, short-term interest rates, including that of treasury bills and interbank transactions are decreasing. The interest rate of government bonds and treasury bills has fallen below 5 percent.