On Tuesday, July 11, NRB issued reverse repo of Rs 20 billion to mop up excess liquidity in the banking system.
In response to this, the banks have applied for reverse repo of Rs 53.50 billion.
In the application, the banks have quoted interest rate upto 1.5900 percent. as per NRB, the average interest rate of the repo has been maintained at 2.5409 percent.
Banks have shown huge interest to deposit their excess liquidity with NRB. Dumping of huge investable money within the banks is a huge burden for them, thus, they are showing huge interest to deposit the amount with NRB although in lower interest rates.
Currently, deposits in commercial banks are increasing while the loan extension has not increased proportionately due to which liquidity in the banking system has skyrocketed.
Due to which, the interbank interest rates has also declined to 1 percent.
Although NRB has kept policy rate at 7 percent, the interbank rate has gone too deep. NRB, in the current FY’s monetary policy, stated that it will mop up excess liquidity if interbank rates falls 1 percent below policy rate. Accordingly, it is mopping up the liquidity.
Commercial banks, development banks and finance companies can participate in the repo. In this regard, NRB has made a master repurchase agreement mandatory for the participation.
