Co-ordination between

Fiscal Policy Monetary Policy&

Liquidity Management

in

Presented By:

March 5, 2014

Himalaya Ban

of Nepal

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Individual Vs Government Budget

Vs

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Individual

Estimation of Expenses

Earn

Government Estimation of Expenses

Earning Sources

Individual Budget

Government Budget

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Summary of Income and Expenditure

Revenue 216644355

Total Expenditure 337900000

Surplus (+) Deficit (-) (121255645)

Foreign Grant 65344230

Surplus (+) Deficit () ( 55911415 )

Foreign Loan 22231415

Domestic Borrowing 33680000

Why Government issues securities?

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Types of Government securities

Short term security: T-bill

Long term securities

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Short term Government securities issued by NRB

Treasury Bill (T-bill)

The primary purpose of issuing T-bill is to make fund available to government whereas secondary purpose is to manage liquidity in market.

Treasury bill is a short-dated government security, yielding no interest but issued at a discount on its redemption price.

Maturity period of Treasury bill are 28 days, 91 days, 182 days and 364 days in context of Nepal.

Among them 91 days T-bill is very famous in Nepalese Market. NRB issued T-bill on every Monday and made allotment in Tuesday. There is proper bidding mechanism in NRB

1. Repo2. Reverse Repo3. Outright Purchase4. Outright sale

Secondary transaction of T-bills

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Repo: Repurchase Agreement

Loan (Cash)

T-Bills

NRB

Opening Leg

A Repo is a sale of securities coupled with an agreement to repurchase the same securities at a higher price on a later date.

It arranged for short period, typically ranging from overnight to 4 weeks. The ownership of securities is not transferred It is designed to inject liquidity

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T-Bills

Loan + Interest

NRB

Closing Leg

Repo: Repurchase Agreement

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Unissued T-Bills

Cash (Loan)

NRB

Opening Leg

Reverse Repo Under Reverse Repo NRB borrows from the Commercial

banks with the objective of moping –up excess liquidity from the system.

It is designed to withdrawal liquidity.

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T-Bills

NRB

Closing Leg

Reverse Repo

Loan + Interest

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Outright purchase

Cash

T-Bills

NRB

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UnissuedT-Bills

Cash

NRB

Outright Sale

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Standing Liquidity Facility (SLF)

COMMERCIAL BANKS

NRB

T-Bill, Bond as Collateral

Short Term Loan

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• SLF rate is determined through weighted average of 91 days T-Bill + 3% panel rate determined by OMOC

• NRB always tries to promote that liquidity problems be solved within the commercial banks.

• NRB stands as lender of last resort and SLF is used by NRB as solution for short term remedy only

• Thus to penalize the bank, it charges extra 3% as penalty rate.

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• The primary purpose of issuing the T-Bills is to implement the fiscal policy.

• The Secondary purpose is to implement the monetary policy.

• Two types of bond short term and long term.

• The different type of instrument were used by NRB to maintain the liquidity in the market.

Conclusion

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