Nepal Rastra Bank Decides to Withdraw NPR 12 Billion from Financial System

Nepal Rastra Bank has decided to withdraw NPR 12 billion from the financial system through a 97-day deposit collection instrument. On Wednesday, it withdrew NPR 4 billion for 49 days, and on Thursday, it plans to issue deposit collection instruments for a larger amount and for a longer duration. The central bank uses deposit collection and standing deposit facilities to manage liquidity, with the current bank rate at 6% and the standing deposit facility rate at 2.75%.

According to the bank, there was approximately NPR 5.5 billion liquidity in the financial system as of Thursday. However, as deposits previously placed by banks and financial institutions under the standing deposit and deposit collection schemes mature, the central bank issues these deposit collection instruments again to withdraw that liquidity. Banks and financial institutions normally place funds with the central bank via the standing deposit facility for short terms when they have excess liquidity.

In the deposit collection instrument, the central bank prioritizes distributing funds to banks and financial institutions willing to accept a lower interest rate. The central bank manages liquidity and interbank interest rates through tools such as deposit collection instruments and standing deposit facilities, withdrawing money from the market as needed. Conversely, when liquidity is tight, it injects funds using standing liquidity facilities and repurchase agreements (repo). When the central bank injects liquidity, it charges interest at the upper limit of the interest rate corridor called the bank rate; when it withdraws liquidity, it pays interest equal to the lower limit of the corridor, the standing deposit facility rate. Currently, the bank rate stands at 6%, while the standing deposit facility rate is 2.75%.