Kathmandu. Even as the overall economy is slowing, the amount of transactions through the Real Time Gross Settlement System (RTGS) is increasing unnaturally. Generally, large electronic payments are believed to increase only as economic activity expands. However, the growth in RTGS transactions in recent months is more indicative of the liquidity management within the banking system than the actual movement of the economy.
Last year, the monthly transaction through RTGS was Rs 50 to 60 trillion, but now this figure has reached around Rs 150 trillion. In the month of October alone, more than Rs 146 trillion has been settled through RTGS. Experts say that the main reason for the increase is the large amount of money coming into circulation again and again, as the number of transactions is almost the same.
At the heart of this is the excess liquidity piled up in the banking system. In recent times, the banks have not been able to use deposits due to weak demand for loans. In order to manage this additional liquidity, the NRB is using short-term monetary instruments to withdraw money from banks. According to NRB officials, such transactions between the bank and the central bank are settled through RTGS, which has increased the transaction amount.
A large amount of payment is made through RTGS every time banks deposit, withdraw or roll over money in the Rastra Bank at the lower limit of the interest rate corridor. The volume of RTGS has been high even though the real financial transactions have not increased due to the same amount revolving repeatedly. This indicates that although the digital payment system is active, the pace of production, trade and consumption is weak.
The structure of the RTGS transaction also reveals another aspect. Although there is a lot of liquidity in the economy, it is not able to go to the productive sector. If credit expansion to industry, trade and infrastructure had accelerated, the increase in RTGS transactions would have been directly linked to economic expansion. However, the current increase is largely limited to transactions within the financial system.
Normally, the RTGS transaction amount increases due to the pressure of tax payment in mid-January and mid-July. However, the current month-on-month high turnover can be attributed to a temporary monetary management process. Experts say that in the long run, it would be misleading to conclude that the economy is moving only by looking at the volume of RTGS transactions.
Therefore, the current RTGS volume growth should be seen as a reflection of economic slowdown, weak credit demand and liquidity management pressures rather than the success of digital payments. Experts say that along with the amount of RTGS, the number of transactions, credit expansion and the indicators of production and trade also need to increase simultaneously to see real economic recovery.
