KATHMANDU, Dec 12: A number of commercial banks have started lowering their interest rates on deposits after Nepal Rastra Bank (NRB) turned lenient in its policy rate and bank rate through the first quarterly review of the monetary policy.
KATHMANDU: Nepal’s banking sector grapples with an overflow of investable funds, reaching 540 billion rupees. However, despite this surplus, banks face a declining loan-to-deposit ratio, now at 80.92 percent, impeding credit flow. In response, the Nepal Rastra Bank (NRB) aims to sustain a 90 percent loan-to-deposit ratio via monetary policy. This suggests untapped lending potential, […]
Prayas Shrestha
Kathmandu - The banks and finance companies in which Nepal Rastra Bank (NRB) is said to reduce the goods by 0.4 percent, their spread rate will only be implemented from the next financial year. The integrated directive, 2078 which the central bank had issued to banks and financial institutions of categories A, B, and C have been revised on Wednesday. According to the revised integrated directive by the central bank, the average interest rate difference (spread rate) set by the monetary policy will only be implemented from Asar 2080.
The bank reviewed the monetary policy of the fiscal year 2079-80 and stated that the spread rate of commercial banks will be reduced by 0.4 percent from the previous spread of 4.4 percent to 4 percent, while the average interest rate difference between development banks and finance companies will be maintained to 4.6 percent from 5 percent. But NRB states that this policy will be postponed this year and will be implemented from the next year on.
Rather, NRB states that it will only reduce the spread rate up to 0.2 percent, backing away from its decision to cut the spread by 0.4 percent. The integrated directive, 2078 which NRB has revised, states that the banks and finance companies should maintain an average interest rate gap of 4.2 percent and 4.8 percent respectively from Chaitra 2079 onwards.
Why did Nepal Rastra Bank back away from its own decision?
To reduce the impact of the recently increased interest rate on production, NRB adopted a policy to reduce the spread rate by reviewing the monetary policy. Due to the high-interest rates, the industrial businessmen protested against the bank saying that it was impossible to do business and the movement is still ongoing.
When the pressure of the businessmen started affecting NRB directly-indirectly, the bank decided to address the demand by reducing the spread rate through monetary policy, thus backing away from its own decision.
"Monetary policy will take aim, and implementation will happen only after the circular." Even though the quarterly review was said to reduce the spread rate by 0.4 percent, as it is not appropriate to reduce it immediately based on the needs, the policy of gradually reducing the spread rate has been adopted,' Narayan Prasad Pokharel, the co-spokesperson of NRB, told Ratopati.
After the review of the monetary policy, the circular of NRB said that it will reduce the spread rate by 0.2 percent after the middle of Chaitra 2079, and by 0.4 percent only after the middle of Asar 2080, rather than reduce the spread rate by 0.4 percent directly.
The concern of Bank's profit
It seems that NRB, which has made a policy of reducing the spread rate to control the interest rate of loans, has acted due to the banks' profit concerns. The interest rate of the loan also decreases, upon the decrease of the spread rate. It is seen that the banks are putting pressure on NRB to not reduce the spread rate after the profit shrinks.
Currently, the interest rate of deposits of commercial banks is 12.13 percent. If the spread rate is maintained at 4.4 percent, the interest rate of loans will reach 16.53 percent. But when the spread rate decreases by 0.4 percent, the interest rate of the loan will reach only 16.13 percent and the profit will decrease making the banks suspicious. However, the interest rate of the loan is also affected by the base rate of the banks and the premium charge.
The problem of the interest rate is now, but why did NRB postpone the implementation of the spread rate policy of 4 percent to the next financial year? To the question, the co-spokesperson of NRB, Pokharel said, "It is impossible to cure every disease at once." Even if there is a severe disease, treatment must be done gradually. Thus, NRB adopted a policy of reducing the spread rate by 0.2 percent after Chaitra and by another 0.2 percent after Asar. This decision has been taken by keeping in mind that if the spread rate is reduced by 0.4 percent at once, there will be huge pressure on the banks.
But since the liquidity in the financial market is getting easier in recent times, the interest rate is seen to decrease automatically, so there is no need to grab the reins of the spread rate according to Pokharel.
NRB has stated that the inter-banking interest rate of 8.5 percent has dropped down to 7 percent.
KATHMANDU, Dec 7: Home Minister Bal Krishna Khand, Finance Minister Janardan Sharma and Minister for Industry, Commerce and Supplies, Dilendra Prasad Badu have called for the government's intervention saying that the current monetary policy and the interest rates set by banks are going to invite serious problems to the country's economy.
KATHMANDU: Home Minister Balkrishna Khand, Finance Minister Janardan Sharma and Minister for Industry, Commerce and Supplies Dilendra Prasad Badu have called for government’s intervention saying that the current monetary policy and the interest rates set by banks would invite serious problems to the country’s economy. Home Minister Khand said he put forth the view that […]
HM Khand, Minister Sharma, Minister Badu have called for the government's intervention saying that the current monetary policy and the interest rates set by banks would invite serious problems to the country's economy.
WASHINGTON, April 20: The International Monetary Fund (IMF) on Tuesday slashed global growth forecast for 2022 to 3.6 percent amid the Russia-Ukraine conflict, 0.8 percentage points lower than the January projection, according to its newly released World Economic Outlook report.
The Ukraine crisis unfolds while the global economy is "on a mending path" but has not yet fully recovered from the COVID-19 pandemic, the report said, noting that global economic prospects have worsened "significantly" since the forecast in January.
A severe double-digit drop in gross domestic product (GDP) for Ukraine and a large contraction in Russia are "more than likely," along with worldwide spillovers through commodity markets, trade and financial channels, the report showed.
This year's growth outlook for the European Union has been revised downward by 1.1 percentage points to 2.8 percent due to the indirect effects of the conflict, making it a large contributor to the overall downward revision, according to the report.
The U.S. economy is on track to grow 3.7 percent in 2022, 0.3 percentage points lower than the January projection, before growth moderating to 2.3 percent in 2023. The Chinese economy is expected to grow 4.4 percent this year, 0.4 percentage points lower than the previous projection, followed by a 5.1-percent growth in 2023, the report showed.
China's National Bureau of Statistics said on Monday the country's GDP grew 4.8 percent year on year in the first quarter, marking a steady start in 2022 in the face of global challenges and a resurgence of COVID-19 cases.
Analysts said the full-year growth target of 5.5 percent set by China's policymakers is still attainable but requires greater efforts, given increasing economic headwinds.
Global growth is projected to decline from an estimated 6.1 percent in 2021 to 3.6 percent in both 2022 and 2023, 0.8 and 0.2 percentage points lower for 2022 and 2023, respectively, than in the January projection, the report noted.
The report laid out five principal forces shaping the near-term global outlook: the Russia-Ukraine conflict, monetary tightening and financial market volatility, fiscal withdrawal, slowing growth in China, and pandemic and vaccine access.
Inflation has become "a clear and present danger" for many countries, IMF chief economist Pierre-Olivier Gourinchas said at a virtual press conference during the 2022 spring meetings of the IMF and the World Bank.
He said even prior to the Russia-Ukraine conflict, inflation surged on the back of soaring commodity prices and supply-demand imbalances, and many central banks, such as the U.S. Federal Reserve, had already moved toward tightening monetary policy.
Conflict-related disruptions "amplify those pressures," said Gourinchas. "We now project inflation will remain elevated for much longer."
For 2022, inflation is projected at 5.7 percent in advanced economies and 8.7 percent in emerging markets and developing economies, 1.8 and 2.8 percentage points higher than the January projection, the report showed.
Financial conditions tightened for emerging markets and developing countries immediately after the conflict, Gourinchas noted. "Several financial fragility risks remain, raising the prospect of a sharp tightening of global financial conditions as well as capital outflows," he said.
On the fiscal side, policy space was already eroded in many countries by the pandemic, said the IMF chief economist. "The surge in commodity prices and the increase in global interest rates will further reduce fiscal space, especially for oil- and food-importing emerging markets and developing economies."
The report also warned that the conflict increases the risk of a more "permanent fragmentation" of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems and reserve currencies.
"Such a 'tectonic shift' would cause long-run efficiency losses, increase volatility and represent a major challenge to the rules-based framework that has governed international and economic relations for the last 75 years," Gourinchas said.
In response to a question from Xinhua, the IMF chief economist said at the press conference that the multilateral organization thinks fragmentation "is more of a longer run risk than a short run risk."
"We are not anticipating that there will be immediately severe dislocation, but you could see countries sort of de-globalizing or reverting and undoing some of the gains from trade integration," Gourinchas said. "And that's certainly a source of worry for us."
The IMF urged central banks to adjust their policies decisively to ensure that medium- and long-term inflation expectations remain anchored, noting that clear communication and forward guidance on the outlook for monetary policy will be "essential" to minimize the risk of disruptive adjustments.
Several economies will need to consolidate their fiscal balances, the report noted, adding that this should not impede governments from providing well-targeted support for vulnerable populations, especially in light of high energy and food prices.
"Embedding such efforts in a medium-term framework with a clear, credible path for stabilizing public debt can help create room to deliver the needed support," according to the report.
Gourinchas also argued that even as policymakers focus on cushioning the impact of the war and the pandemic, other goals will require their attention, noting that the most immediate priority is to end the war.
He also urged countries to close the gap between stated ambitions and policy actions on fighting climate change, secure equitable worldwide access to the full complement of COVID-19 tools to contain the virus, as well as ensure that the global financial safety net operates effectively.
"The many challenges we face call for commensurate and concerted policy actions at the national and multilateral levels to prevent even worse outcomes and improve economic prospects for all," he added.
