Central bank to inject Rs. 5b in market

Nepal Rastra Bank (NRB) is set to inject additional Rs. 5 billion within this week in the banking system for the Rs. 12 billion pumped through repo (a monetary instrument under which central bank purchases treasury bills) failed to address the liquidity crunch.

The central bank has taken the decision to purchase treasury bills of the banks to inject the additional liquidity in the market."We've decided to purchase treasury bills through outright purchase," said Lila Prasad Sitaula, Executive Director of NRB. "Additional Rs 5 billion will be injected in the market with NRB purchasing treasury bills," said Sitaula. In addition, the central bank is also planning to pump Rs. 3 billion some time later through repo.

NRB has already poured around Rs. 10 billion in the market through repo. The discount rate of the 91 days treasury bills, renewed by the central bank on Monday has reached near 10 percent. The discount rate that remained at 9.68 percent on Monday illustrates the liquidity crunch of the market.

According to the central bank, there were few takers for the 182 days treasury bills. It received the application of only Rs. 430 million for it. As per the monetary policy for the current fiscal year, the banks are required to deposit certain percent of their total deposits in central bank through Statutory Liquidity Facility, according to which, commercial banks, development banks and finance companies have to deposit 4 percent, 2 percent and 1 percent of their deposits respectively.

The banking system is facing liquidity crunch for the last three months. According to the central bank, the market saw liquidity shortage of Rs. 3.75 billion this week. And, inter-bank lending rate has remained at 13 percent over the last one month. This scenario indicates that the liquidity crunch in the economy will remain longer. In the mean time, the central bank is also evaluating the liquidity situation of around one dozen commercial banks.
Source:eKantipur