Earlier indications that liquidity was getting scarce in the market emerged from the increasing discount rates issued by Nepal Rastra Bank on 91-day treasury bills mainly due to government’s inability to spend the huge resources it mobilized in terms of revenue.
A high-ranking central bank official told myrepublica.com that the government has a record treasury surplus of Rs 27 billion which was Rs 25 billion a few weeks ago. “If you examine what’s been happening at the treasury, you’ll find that it swelled by two billion rupees in the last two weeks. Which means although the government absorbed a huge amount from the market in terms of various taxes, it failed to inject the resources back into the economy in terms of increased capital expenditure — thus creating an unexpected liquidity crunch,” the official said.
The official further said that the heavy and unnatural withdrawals from the banks also aggravated the already dismal situation that the banks had found themselves in. In fact, according to media reports, the withdrawal of deposits from the banking system more than doubled last month in response to repeated threats by the government that it would take strong action against those not complying with the Voluntary Disclosure of Income Scheme (VDIS) it floated.
The official at the central bank also says that the discount rate during this week’s treasury auction has gone up by 1.7 percentage points from the week before, to reach 7.83 percent. The higher discount rates demanded by the commercial banks also show that lenders are facing shortage of liquidity.
According to the official, only 72 percent of the offered amount was bid during this week’s auction of treasury bills and that bid volume was the lowest in recent months.
The central bank has offered Rs 500 million worth of 91-day treasury bills in its weekly action on Monday. However, only six banks tabled 21 applications worth 360 million in the bidding process.
The Nepali market with a marginal liquidity volume of Rs 5-7 billion has been experiencing lack of enough liquidity for the last two to three months, said Sashin Joshi, president of Nepal Bankers’ Association. However, Joshi stressed that the present liquidity crisis is not serious enough to harm the economy.
A senior official of the Nepal Rastra Bank said the central bank is closely watching the situation and vowed to take appropriate and timely steps to ease the liquidity crunch. If the situation doesn’t improve by the next week, the central bank will call repo, a monetary instrument under which central bank purchases treasury bills from commercial banks thereby injecting additional liquidity to the market.
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