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NRB Tightens Interest Rate Corridor with New Standing Deposit Facility

The Nepal Rastra Bank (NRB) has launched a Standing Deposit Facility (SDF) offering a fixed 3 percent interest rate to absorb excess banking liquidity and stabilize volatile money markets. While designed to establish a solid floor for the central bank's interest rate corridor, ongoing credit slumps are shifting heavy interest costs to the NRB, prompting financial experts to call for a transition from a twice-weekly window to a daily operation.

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NRB Tightens Interest Rate Corridor with New Standing Deposit Facility

Nepal Rastra Bank (NRB) has introduced a Standing Deposit Facility (SDF) to stabilize the money market, allowing banks to deposit excess liquidity at a fixed 3 percent interest rate. This tool establishes a firm floor for the central bank’s interest rate corridor—flanked by a 5.5 percent policy rate and a 6.5 percent ceiling—to prevent interbank rates from collapsing during credit slowdowns, safeguard savers' returns, and stabilize commercial lending.However, absorbing this surplus capital shifts financial interest expenses onto the NRB. To maximize policy effectiveness and stop banks from undercutting the 3 percent floor on off-days, experts recommend transitioning the SDF from a twice-weekly window to a daily operation. Ultimately, a more proactive monetary approach will be essential to effectively manage ongoing liquidity imbalances and ensure long-term market stability.

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