Other instruments the Nepal Rastra Bank (NRB) uses for the purpose are reverse repo and outright sales, but it has lately been using the deposit collection scheme predominantly because of its comparatively longer maturity period.

The deposit collection instrument has a maturity period of three months, which means the cash raised by the central bank won’t return to banks and financial institutions (BFIs) at least for three months. The reserve repo comes with just a week’s maturity period.

“We raised Rs90.6 billion through the deposit collection in the last three weeks, which brought down the excess liquidity in the banking system significantly,” said NRB Executive Director Nara Bahadur Thapa. “With the absorption of an additional Rs5 billion planned for Sunday, the total amount absorbed will reach close to Rs100 billion.”

At the end of the last fiscal year, the banking system had excess liquidity over Rs100 billion, with the BFIs failing to lend amid surging deposits.

The NRB expects the excess liquidity to remain for the next few months until the government expenditure picks up. “Private sector investment also grows along with the government’s expenditure. And as the loan demand rises, the liquidity will flow in the market,” said Thapa.

Usually, the government starts spending in development projects only after Dashain and Tihar because preparatory works consume much time before these festivals.