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Evaluating the effectiveness of Standing Deposit Facility in preserving the interest rate corridor floor in Nepal

Author

Listed:
  • Victor Kumar Sapkota

    (Nepal Rastra Bank)

Abstract

This paper uses data from February 13, 2025, to May 26, 2026, in order to determine whether SDF has helped preserve the interest-rate corridor floor set by Nepal Rastra Bank. Using a 2×2 contingency framework and Fisher's exact test to study the association between SDF operation days and disruption of the corridor floor, the results indicate that the weighted average interbank rate dropped below the floor rate almost exclusively on non-SDF operation days with high statistical significance (one-sided p value = 0.00000101). Conducting SDF operations reduced the probability of the weighted average interbank rate falling below the corridor floor by more than 90 percent. Without accounting for operational frictions, the findings support expanding SDF availability to all interbank trading days to strengthen the lower bound of the interest rate corridor.

Suggested Citation

  • Victor Kumar Sapkota, 2026. "Evaluating the effectiveness of Standing Deposit Facility in preserving the interest rate corridor floor in Nepal," NRB Working Papers 62/2026, Nepal Rastra Bank, Economic Research Department.
    • Handle: RePEc:nrb:wpaper:nrbwp202051
    as

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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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