The Rs 19.5
billion reverse repo – a financial instrument to mop up excess liquidity for
short term from the market – today has received bids worth Rs 31.3 billion from
20 banks and financial institutions today.
Though the
central bank has projected to contain inflation under 7.5 per cent , the excess
liquidity has been fuelling the inflation forcing the central bank to
repeatedly issue reverse repo to mop up excess liquidity from the banks.
Due to
excess liquidity the inflation has surged to 10.3 per cent in the fifth month
of the current fiscal year as the government and central bank both failed to
contain the inflation.
According to
the latest data, the banks and financial institutions have around Rs 40 billion
at present. The low borrowing from the private sector due to low capital
expenditure by the government and second Constituent Assembly (CA) election has
flooded the money back to banking channel.
The central
bank has fixed an interest rate of 0.41 per cent for the reverse repo, though
the rate is fixed through open bidding.
The central bank has also
lowered the Cash Reserve Ratio to four per cent for the banks giving them
enough room to invest but the low credit demand has made them sit on the cash
pile that has forced the Nepal Rastra Bank (NRB) absorb surplus funds from the
banks and financial institutions.
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