January 4: Banks and financial institutes (BFIs) have made bids worth billions of rupees in compliance to the financial instruments issued by the central bank to mop excess of liquidity from the banking system.

Nepal Rastra Bank (NRB) has issued short-term reverse repo of Rs 110 billion four times in the current fiscal year. BFIs have made biddings of Rs 278.25 billion for the reverse repo.

The central bank has also issued deposit collection instruments worth Rs 160 billion with maturity period of 28 days for 5 times as of December 31, 2020 to mop excess of liquidity. NRB has received biddings of Rs 333.2 billion for those instruments.

Of late, banks have become willing to send their money to the central bank even at a low rate of interest. There is excess of liquidity in the banking system due to low demand for loans at present. Instead of stockpiling the money, BFIs are willing to transfer the cash to the central bank reserve in return for nominal interest.

Banks have made submitted bids to the central bank expressing their quotation of maximum interest rate of 1.5411 percent and a minimum of 0.2060 percent for the reverse repo with maturity period of one week.

The central bank has said that excess of liquidity in the market can result in low interest rate which in turn will deter savings, and may also cause inflation.

In order to avoid such a situation, the central bank has issued financial instruments to mop excess of liquidity.

At present, the banking system has excess liquidity of Rs 176 billion, according to the central bank. Stating that the refinancing provision has resulted in excess liquidity, NRB Spokesperson Dr Gunakar Bhatta said that the central bank has already mopped Rs 60 billion from banks.