Banking Khabar /Nepal Rastra Bank (NRB) has revealed it spent nearly Rs 10 billion last fiscal year to effectively implement the interest rate corridor and manage excess liquidity in the financial system.
As economic activity slowed down, loan demand from banks and financial institutions dropped, causing excess money to pile up in the system. This led to an abnormal decline in interest rates. To prevent rates from falling below the lower limit of the interest rate corridor, NRB had to absorb liquidity through deposit collection tools and the Standing Deposit Facility (SDF), resulting in high costs.
In FY 2080/81, the central bank:
* Issued deposit instruments worth Rs 4.259 trillion
* Collected Rs 3.4295 trillion from banks and financial institutions
* Absorbed Rs 21.584trillion through the SDF
* Paid an average 3% interest on these deposits
For the current fiscal year, NRB has reduced the SDF interest rate to 2.75%.
NRB Spokesperson Kiran Pandit said liquidity pressure has eased this year, and the situation may not repeat at the same level. However, if excess liquidity persists, NRB might have to spend up to Rs 21 billion on interest rate management.
Under the interest rate corridor system:
Lower limit: Standing Deposit Facility (SDF)
Upper limit: Standing Liquidity Facility (SLF)
Midpoint: Interbank transaction rate
NRB uses this framework to keep market interest rates within a stable range.
