Central bank under pressure to further reduce the policy rate

KATHMANDU, Jan 14: Except NMB and Everest Bank, all commercial banks in the country have reduced the maximum interest rate on deposits. Banks have reduced the interest on savings, which has a share of 26.3 percent, as well as fixed deposits, which has a share of 60.7 percent in their total deposit.

Banks have reduced the interest rate of deposits to decrease costs as they are not able to provide loans despite having more liquidity. Since Shrawan (mid-July to mid-August), banks have been continuously reducing interest on deposits.

NMB has kept interest at 9 percent and Everest at 8 percent. All other banks have reduced the interest rates. Government banks have become more enthusiastic and are competing to reduce interest rates.

Nepal Rastra Bank (NRB) had conducted a monetary review in Asoj (mid- September to mid-October) and given some flexibility in its policy and bank rates. After that, the commercial banks have also been reducing the interest. Banks have further reduced interest rates with effect from January 15.

"The 'aggression' shown by the banks has indicated that the NRB should further reduce the policy rates," said a senior official at the NRB, "Things would have been different if the demand for loans had increased and gone to the unproductive sector. However, there will be no increase in credit, but there will be an improvement in liquidity. So, there is no concern that money will go to unproductive sectors. Therefore, it seems that it should be reduced from the half-yearly review.