January 4: The average interbank interest rate has remained within the limits of the interest rate corridor after four months. The interest rate rose above the lower limit of the corridor after Nepal Rastra Bank mopped more than Rs 250 billion of excess liquidity through deposit collection tools.

According to Nepal Rastra Bank, the daily average interbank interest rate remained at 3.0358 percent on Tuesday. On Monday, the interbank interest rate was 2.8075 percent.

There is a provision in the 'Interest Rate Corridor Procedure-2076' there to set the upper limit of the bank rate and the lower limit of the deposit collection rate and keep the interbank interest rate in between. The central bank has fixed the deposit collection rate at 3 percent through the first quarterly review of the monetary policy of the current fiscal year (FY). Earlier this rate was 4.5 percent. In the current fiscal year, the interbank interest rate fell below the limit of the interest rate corridor from the mid-September.

The central bank, which did not use any tool to increase interest rates until November 21, issued deposit collection tools 17 times and raised Rs 264.90 billion of liquidity from the market as of Wednesday. Out of that amount, Rs 117.65 billion is still with the central bank while the rest have matured and returned to the banking system.

After the deposits of Rs 25 billion matured on Wednesday, the central Bank has called for applications to collect deposits worth Rs 20 billion from the market on Thursday.

In the current fiscal year, there has been excess liquidity in the financial system due to the inability of banks to provide loans compared to the increase in deposit collection in the banking system.

The average credit-deposit ratio (CD ratio) of banks remained at 80.06 percent on Monday. According to the provision that banks can give loans by maintaining this ratio up to 90 percent, they have the capacity to expand loans by an additional Rs 600 billion.

As of Monday, banks had collected deposits of Rs 6065 billion and provided loans of Rs 5024 billion. In the current fiscal year, bank deposits have increased by Rs 294 billion, while lending has increased by Rs 146 billion only. After mid-December, banks reduced the interest rate and focused on providing loans.