Banks and financial institutions (BFIs) have published their interest rate to be effective from Kartik. The BFIs are offering a maximum of 10.50 percent interest rate in deposits.
Out of them, Himalayan Bank is providing the highest interest rate of 10.50 percent in one year fixed deposit. The commercial banks are in unhealthy competition to increase the interest rate thus, attracting deposits.
Despite of this, Nepal Rastra Bank (NRB) takes ever-increasing imports due to which an increasing balance of payment (BOP) deficit as the culprit for the rising interest rates.
Dr Prakash Shrestha, Executive Director of NRB said that the import and loan extensions are increasing simultaneously in the country. ‘Major part of loans is diverted to imports which have exploded the trade deficit. This will also bring liquidity crunch in the banking sector which has ultimately increased the interest rate’ he added.
However, the increased interest rates have given sleepless night to the business sector and the public. An increase in deposit interest rate will also increase interest rates of loans which is unacceptable to the business sector.
Yet, the plight of the ordinary people has been unseen by NRB. It takes the increase in interest rates as a healthy sign for the economy.
Shrestha stated that the banks increased the interest rates due to a liquidity crunch. It will bring both positive and negative affect in the market. It is true that the increase in interest rates of deposits will also increase in interest of loans which will affect other economic activities. But, the rise in interest rates in loans will increase the cost of imports. When the cost of imports increases, the economy’s consumptions decreases and savings increase. It will balance BOP. The interest rates are required to increase to correct the market.
Meanwhile, the general public and business sector think that the central bank should intervene in the market to cap the interest rate to one digit. They fear that the increased rates will increase the cost of investment that will decrease consumption. Decrease consumption leads to decreased investment which is not a suitable phase for the economy.
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