The central bank implemented liquidity mop-up measures as commercial banks and financial institutions continue to grapple with surplus loanable funds driven by rapid deposit growth and sluggish private-sector credit demand.
According to the central bank’s Monetary Operations Statement published on August 19, NRB executed a total of 51 liquidity absorption transactions to withdraw Rs 289.56 billion. The mop-up operations were conducted primarily through regular deposit collection instruments totaling Rs 208.11 billion, followed by NRB bonds worth Rs 41.45 billion, and Standing Deposit Facility (SDF) transactions amounting to Rs 40 billion. As of August 19, the total outstanding balance held in central bank instruments stood at Rs 131.85 billion, comprising Rs 87.08 billion in deposit collection, Rs 40 billion in NRB bonds, and Rs 4.77 billion through the SDF.
Reflecting the broader surplus in the system, NRB did not deploy any injection instruments, such as Repos, Overnight Repos, or the Standing Liquidity Facility, during this period. The absence of liquidity injection highlights a clear shift from previous liquidity crunches toward managing persistent structural excess.
Financial indicators reveal that deposit mobilization by banks significantly outpaced credit expansion to the private sector over the past 11 months of the preceding fiscal year. Without immediate credit demand, financial institutions have increasingly parked idle capital into central bank interest-bearing monetary instruments to manage their risk and yield balances. Although NRB’s monetary policy aimed to maintain lower interest rates and support broader economic activity, credit uptake remains subdued. The trajectory of the banking sector in the coming months will largely depend on whether these banked funds transition into productive sector loans or remain parked within the central bank's short-term facilities.
