Due to persistent excess liquidity in the banking system, Nepal Rastra Bank (NRB) will withdraw an additional Rs. 40 billion from the system on Wednesday. This marks another round of liquidity absorption by the central bank as it continues to manage surplus funds.

Key Auction Details:

• Date & Time: Wednesday, 2:00 PM.
• Method: Open Market Operation (OMO) via a term deposit auction.
• Eligible Participants: Only licensed banks and financial institutions classified under 'Ka' (Commercial Banks), 'Kha' (Development Banks), and 'Ga' (Finance Companies) categories can participate.
• Bid Requirements: Bidding must be done at deposit collection interest rates, though a multiple-interest rate auction is also permissible.
• Bid Size: Each institution can submit a minimum bid of Rs. 10 crore and a maximum of Rs. 5 billion, with the auction continuing until the total target of Rs. 40 billion is exhausted.
• Maturity: The collected funds will be held under an 18-day term deposit instrument, with both principal and interest repayable on Poush 13, 2082.

Context & Implication:
This is a regular liquidity sterilization operation by the NRB. A persistently high level of liquidity in the banking system can put downward pressure on interest rates and potentially fuel inflation. By absorbing this excess cash through term deposits, the central bank aims to tighten liquidity conditions, stabilize short-term interest rates, and maintain monetary stability.

Impact on Banks and the Market:

• Banks: The move provides a secure, short-term investment avenue for banks' excess reserves while reducing their capacity for additional lending in the immediate term.
• Interest Rates: This could help prevent a further decline in deposit rates and moderate lending rates, influencing borrowing costs across the economy.

This action highlights the NRB's active role in managing systemic liquidity to align with its broader monetary policy objectives.