Market experiences liquidity shortage

27, Oct 2009
In an early indication of tightening liquidity in the money market, the inter-banking lending rate has scaled up to a new height and the discount rate on 91-day treasury bills has also increased. Bankers told that due to shortage of liquidity that the market experienced after the end of festivals, the inter-banking rate has increased to 8 percent from around 3 percent when the market opened after festival holidays.
Though a light liquidity shortage is a usual post-festival phenomenon in Nepal, this time it has been aggravated further by sluggish government expenditure due to delay in endorsing fiscal year budget from the parliament, said a leading banker. According to a senior official of Nepal Rastra Bank (NRB), the shrinking bid amount submitted by the banks against the latest 91-day treasury bills is the strongest proof that the financial institutions are in shortage of liquidity. The NRB offered treasury bills worth Rs 500 million on Monday but the bid amount submitted by the banks totaled Rs 980 million and the discount rate offered has also gone up to 4.48 percent from 3.75 percent recorded two weeks back.
"Though the bid amount is more than the offered amount, the worrisome fact is that the bid amount in the past used to be four to five times more than the offered amount but this it is not even double now," said the official. Bankers said 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 as they had to be in long queues outside banks to withdraw cash just before the Dashain festival.
Source: myrepublica.com