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.