NRB introduces measures to check interest rate rise

By Laxman Kafle,Kathmandu, Nov. 28: Nepal Rastra Bank (NRB) has reviewed the monetary policy after the completion of the first quarter of the current fiscal year 2022/23 with an aim of preventing further increase in bank interest rates by managing liquidity in the banking sector.

The central bank Sunday made public the first quarterly review of the monetary policy for the current fiscal year maintaining the existing monetary instruments, including cash reserve ratio and bank rate.

Releasing the review of monetary policy, Spokesperson of NRB Dr. Gunakar Bhatt said that liquidity would be provided to banks and financial institutions so that interest rates did not escalate further.

According to NRB, the mandatory cash ratio has been kept at 4 per cent and the bank rate at 8.5 per cent.

The central bank said that liquidity would be managed in such a way that no disruption would occur in the payment system, targeted lending would not be hampered and immediate increment of interest rate would not occur.

The NRB has stated that the investment made by banks and financial institutions in the bonds issued by the public limited companies related to the agricultural sector in the secondary market would  be counted within the specified limit so that the bank has to invest the minimum loan in that sector.

Average spread interest rate reduced

The central bank has reduced the spread rate by 0.4 percentage points while reviewing the monetary policy today.

According to the new arrangement, the average interest rate difference on loan and deposit of commercial banks will be revised from 4.4 per cent to 4.0 per cent and the average interest rate difference of development banks and finance companies will be maintained from 5.0 per cent to 4.6 per cent.

The NRB has reduced the spread rate after nationwide protests against high interest rates by the businessmen. All over the country, the industrialists had started protesting saying that the interest rate had reached up to 18 per cent.

According to the NRB, the premium rate charged by banks and financial institutions while setting the loan interest rate would decrease and the interest rate on loan would also stabilize.

It said that it would regularly monitor the arrangements related to premiums.

The NRB has made an arrangement that microfinance institutions should publish the base rate monthly from the month of Magh this year.

If the specified loan-deposit ratio is not reached, the penalty imposed on banks and financial institutions would be reviewed based on liquidity risk as well, it said.

Spokesperson Bhatt said that the working capital loan guidelines that are being implemented will be addressed based on the suggestions received from the concerned stakeholders.

In view of the pressure on liquidity, if the banks and financial institutions do not provide loans in the designated areas, the NRB has announced that compensation would be calculated from the month of Poush 2080 on the basis of the month of Asar 2080.