Central bank mops up liquidity for the fourth time

How long it it possible for the central bank to mop up excess liquidity is yet unknown, but today it moped up Rs 10 billion – for the fourth time – in last one month.

However, the banks seem to be drained out as 15 banks bid Rs 13 billion worth securities – treasury bills – for Rs 10 billion reverse repo, despite marginal higher rate of 0.054 per cent.

Last week, the central bank had received bids for securities worth Rs 23 billion for the third reverse repo worth Rs 10 billion at 0.03 per cent rate from 21 financial institutions.
Earlier, on September 4, the central bank had conducted first reverse repo worth Rs 5 billion at 0.08 per cent rate – that attracted Rs 30 billion bid – followed by a week after on September 10 reverse repo worth Rs 10 billion at 0.06 per cent – that attracted Rs 43 billion bid – to sell treasury bills for a certain period to help park idle fund at the central bank and ease the inflationary pressure in the market.

The low bid may also be due to coming festivals. “The people withdrawing money for Dashain and Tihar festival and increasing spending for second Constituent Assembly (CA) election preparations might have squeezed the liquidity from the market.

However, the market will again flush with excess liquidity after the festivals and also due to election, though the central bank has predicted some Rs 20 billion to Rs  22 billion excess liquidity in the banking system currently.