Central bank to mop up Rs 19.5 billion from banks

Central bank is issuing the largest reverse repo – in the current fiscal year –worth Rs 19.5 billion tomorrow to mop up excess liquidity from the banks and financial institutions – that will help contain inflationary pressure.

Unlike earlier five reverse repo of seven-day, it will be a 14-day reverse repo that is expected to mob up Rs 19.5 billion for two weeks.

According to the commercial banks, they have some Rs 65 billion surplus liquidity that has not been utilised due to low credit demand, also due to CA election that might have brought more liquidity into the banking channel.

Earlier, the central bank has mopped up some Rs 45 billion in the current fiscal year 2013-14 in various dates, except Rs 8.5 billion outright purchase auction for securities. But reverse repo is the short-term instrument to mob up excess liquidity from the banks and financial institutions. The central bank accepts deposits from banks against the collateral of securities with the central bank at a certain rate.

Due to excess liquidity in the banking channel – that is expected to fuel inflation and speculation in stock market – the short-term weighted interest rate of 91-day Treasury Bills dropped to 0.0164 per cent on November 26.