Nepal Rastra Bank officials told myrepublica.com that the injection of additional liquidity was made through repo, a monetary instrument under which central bank purchases treasury bills from commercial banks thereby injecting additional liquidity to the market. [break]
However, leading bankers said that the volume of injection made lately is not enough to deal with the present scale of liquidity shortage and shared the view that the central bank should inject more liquidity into the market.
"The real impact of the additional liquidity injected by the central bank will be visible by the end of this week and most probably there will be a need of more liquidity injection in the coming weeks," said a banker.
A senior officer of the central bank, however, said the present liquidity shortage will not prolong as mandatory weekly adjustment of Cash Reserve Ratio (CRR) of banks mainly fueled the additional demand for funds. Amid heavy withdrawals during the festival period, the banks are in pressure to maintain the CRR level, said the official.
According to money market observers, the latest inter-bank lending rate witnessed on Wednesday is the highest in recent months. Such rate was 8 percent on Monday whereas it was around 3 percent when the market opened after festival holidays.
Amid deepening liquidity crunch, all 26 commercial banks have started putting renewed efforts to mobilize additional deposits, mainly by raising the interest rates. Bankers say that almost all the banks are planning to launch new drives to lure new deposits and that no doubt will push the interest rates on deposits upward.
Meanwhile, the central bank has also initiated a study over the present liquidity crunch. The study will focus on the causes of the liquidity and its possible impacts on overall economy, said a government official.
Bankers said that the latest shortage of liquidity was also an impact of chronic note shortage that the country witnessed just before Dashain, Nepal´s biggest festival. As the banks are demanding more cash to settle intra-branch flow of funds made during the crisis, there is higher demand of liquid cash, said a banker.
He also added that pace of deposits coming back to banks has remained slow compared to previous years´ trend, may be due to the shattered confidence of depositors when they had to be in long queues outside banks to withdraw cash from their accounts just before Dashain.
prem@myrepublica.com
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