Nepal Rastra Bank (NRB) is going to issue repo for a period of 14 days equal to Rs. As the liquidity management in the banking system has been facing problems for the past few weeks, the NRB is about to inject liquidity into the banking system by issuing repo worth Rs. 20 billion.

As a short-term instrument of monetary liquidity management, repo and reverse repo transactions have been conducted between Nepal Rastra Bank and commercial banks, development banks and finance companies through bidding since FY 2061/62. Under repo bidding, Nepal Rastra Bank provides liquidity to banks and financial institutions as collateral for treasury bills of the Government of Nepal.

As of September 12, banks and financial institutions have collected Rs. 4,688 billion in deposits and disbursed Rs. 4,326 billion in loans. Deposits of banks and financial institutions have increased by Rs. 25 billion and credit flow has expanded by Rs. 103 billion since September. The main reason for the liquidity management problem is the increase in credit flow as compared to the increase in deposit mobilization.

As a result of liquidity instability in the banking system, banks and financial institutions have taken Overnight Repo of Rs. 14.87 billion and Temporary Liquidity Facility (SLF) of Rs. 288.85 billion since September. The rate of temporary liquidity facility, which is the upper limit under the interest rate corridor, is close to 5%.