Nepal Rastra Bank to Absorb NPR 20 Billion in Liquidity Through One-Month Deposit Auction

In a strategic move to manage market liquidity, Nepal Rastra Bank (NRB), the central bank of Nepal, has announced its intention to collect NPR 20 billion through a one-month deposit collection instrument. This significant operation, conducted via an auction mechanism, underscores the central bank's proactive approach to monetary management and its commitment to maintaining financial stability within the Nepali economy.

The Monetary Management Department of NRB is spearheading this initiative, inviting eligible banks and financial institutions (BFIs) to participate in the bidding process for a 35-day deposit collection period. The auction is designed to absorb excess liquidity from the financial system, a crucial step in controlling inflationary pressures, stabilizing short-term interest rates, and ensuring the effective implementation of the central bank's monetary policy objectives. By withdrawing surplus funds, NRB aims to fine-tune the money supply, influencing lending rates and overall economic activity.

Interested 'A', 'B', and 'C' class BFIs, which are licensed by Nepal Rastra Bank, are eligible to participate in this auction. These institutions are required to submit their bids through the NRB's Online Bidding System (OBSS) by 3:00 PM today. The competitive bidding process will determine the interest rate at which the deposits will be collected, reflecting the prevailing market conditions and the demand for short-term funds. This market-driven approach ensures transparency and efficiency in the allocation of funds.

The terms of the auction stipulate a minimum bid amount of NPR 100 million, with subsequent bids required to be in multiples of NPR 100 million, up to the total invited amount. The allocation of the collected funds will prioritize bids offering the lowest interest rates. In scenarios where multiple bids quote the same lowest interest rate, and the cumulative demand exceeds the remaining available amount, a pro-rata allocation method will be employed to ensure equitable distribution among the successful bidders.

For participating BFIs, the approved bid amounts will be debited from their respective accounts held at Nepal Rastra Bank and subsequently deposited into a separate account specifically designated for these collected deposits. A key aspect for investors and financial analysts to note is that while these collected deposits cannot be counted towards the participating banks' investment portfolios, they are eligible to be included in the calculation of Statutory Liquidity Ratio (SLR) and other liquidity ratios, as per NRB's directives. This provision offers a regulatory benefit to banks, allowing them to meet their compliance requirements while earning a return on their temporarily parked funds.

Principal and interest payments for these deposits are scheduled for Ashoj 2 (Nepali calendar date), ensuring a clear and predictable return for the participating institutions. It is also important to highlight that premature withdrawal or early payment of these collected deposits is strictly not permitted, reinforcing the commitment to the 35-day tenure. This operation is a standard tool in the central bank's arsenal for open market operations, reflecting its continuous efforts to manage systemic liquidity and foster a stable financial environment conducive to economic growth. The NPR 20 billion absorption signals NRB's current assessment of market liquidity and its intent to maintain a balanced monetary stance.