NRB starts to mop liquidity from market to stablise interest rate

By Ajay Chhetri, Kathmandu, Dec 12: Surplus liquidity has declined to Rs 60 billion at the beginning of this week. 

According to the Central Bank Survey and Liquidity Position data, the surplus liquidity was recorded at Rs 63.3 billion on December 10.

A week before, on December 4, the surplus liquidity had recorded Rs 104.34 billion.

Despite the fall in surplus liquidity, the inter-bank interest rate is still at a lower level which was recorded 1 per cent on December 9. 

According to the Deputy Spokesperson of NRB Dilli Ram Pokhrel, NRB has started to mop the liquidity from the market due to its excessive rise. The impact of the excessive rise in liquidity could be seen in the sharp fall in the interest rate in the recent week.

Eventually, to keep the interest rate within the limit set up in the interest rate corridor (IRC) policy, NRB has now started to withdraw liquidity from the market. 

He said that NRB started withdrawing surplus liquidity as IRC seemed to hit its lower bond after a sharp rise in liquidity in the market. He added that the NRB is now expecting the stabilization in the falling of the short-term interest rate soon. 

He stated that if short-term interest rates fall further, there will be a rise in the risk of mobilization of money towards unproductive sectors, hit inflation up and chances of capital flight could arise.

The data showed that the surplus liquidity recorded above Rs 100 billion in November. Subsequently, the inter-bank interest rate slid down to 1.14 per cent on December 2 from 4.02 per cent recorded on November 1 after the fall of the surplus liquidity to Rs 60 billion in the first week of December.

Liquidity surplus/shortage is calculated as residual of reserve held by ODC’s and 70% of daily compulsory CRR requirement.