As envisioned by the recently-unveiled monetary policy, Nepal Rastra Bank (NRB) will implement the “interest rate corridor” form Wednesday.

Implementing the scheme, the central bank will first absorb Rs20 billion from banks and financial institutions (BFIs). “Interest rate corridor will start functioning from tomorrow,” said Chintamani Shiwakoti, deputy governor of NRB. “In the first lot, we will absorb Rs20 billion from the market for two weeks.”

Interest rate corridor is a system for guiding short-term market interest rates by the central bank. It consists of a rate at which the regulators lend to BFIs and a rate at which it takes deposits from them.

NRB has considered the standing liquidity facility (SLF) rate as the upper bound of the corridor, whereas the average interbank rate before two days will be the lower bound.

The central bank, while lending money, will charge the upper bound rate, while it will offer the lower bound rate while absorbing cash from the market.

Shiwakoti added as per the scheme, the central bank has offered an interest rate of Rs 0.3045 percent for absorbing the aforementioned sum of money. “Earlier the BFIs used to quote the interest rates,” said Shiwakoti. “However, after the implementation of the corridor, the central bank will determine the rates.”