KATHMANDU, JAN 02 - Moving away from its role as a price determiner of government bonds, Nepal Rastra Bank (NRB), the central bank of the country, has initiated process to allow the market to determine the price of the government bonds through open trading.
Talking to The Kathmandu post a high-level official at the NRB confirmed the latest developments at the central bank directed towards providing the market full authority to determine the prices of the state-owned bonds that match the market-mood.
"We have already initiated process to allow the trading of the government bonds at market-sentiment prices," said Shiba Raj Shrestha, Director at the Public Debt Management Department at the NRB.
"If everything moves in the right direction, the NRB would allow such trading by upcoming March this year," he added.
The government bonds are issued by the state to source the fund of deficit financing. Current official data reveals that the government has raised almost around Rs 79 billion by issuing various bonds, the trading of which is entirely handled by the central bank.
However, Shrestha informed that only development bonds would be left to the market for price-determination in the first phase.
"As the development bonds relatively have low contribution, only about 16 billion, in the total raised internal loan, the NRB wants to experiment with less risky financial instruments," he added.
Apart from the development bonds, the government resorts to four other different bonds to raise internal loan that includes Citizen Saving Certificates, National Saving Certificates, Treasury Bills and special bonds. And at present, the trading of every kind of government bonds is handled by the central bank at face value through its 39 market makers, known as dealers.
Besides development bonds, the NRB would also allow the market to determine the price of other government bonds including Treasury Bills, National Saving Certificates and Citizen Saving Certificates. "Other bonds would also be brought to the market gradually and let the market-mechanism to determine the prices," he added hinting such developments would take place with the start of next fiscal year.
The latest exercise from the central bank has come in the line to enlist every kind of government bonds in the country’s sole secondary stock market, the Nepse.Senior officials at the central bank informed The Kathmandu Post that the NRB is in intense exercise to enlist all government bonds at the Nepse by the middle of the next fiscal year.
"We have asked the Nepse to upgrade its trading system by introducing automation, among others. And the NRB, at the same time, would gradually release government bonds to the market so that their price would be determined by the market trading," he added.
In his budget speech during mid-July 2003, Finance Minister Dr Prakash Chandra Lohani had announced that the government would seriously work in the direction to enlist the government bonds at the secondary stock market.Posted on: 2004-01-03 04:25

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