MoF forms panel to look into financial, capital market instability

Published On: December 7, 2018 07:30 AM NPT

Panel given seven days to submit recommendations

KATHMANDU, Dec 7: The government has formed a high-level committee under Nepal Rastra Bank (NRB) Deputy Governor Shiva Raj Shrestha to look into the overall trend of monetary and capital market in recent time and recommend to the government suggestions for maintaining financial stability and addressing problems related to investment for industrial sector and capital market.

Chairman of Securities Board of Nepal (Sebon), President of Nepal Bankers’ Association, representatives of organizations of stock investors and joint secretary of the Ministry of Finance (MoF) are other members of the committee formed through a minister level decision on Thursday.

The initiative comes in the wake of skyrocketing interest rates of bank and financial institutions which has not only sent stocks downward but is also going to raise the cost of borrowing for businesses and private sector. 

After NBA decided to ditch the cap on individual fixed deposit amid demands of its member banks which were facing acute shortage of lendable fund, interest rates have started to spiral up as commercial banks battle to lure fresh deposits.

Earlier on Tuesday, the NBA scrapped its interest rate cap of 11 percent on individual fixed deposit, allowing commercial banks to fix rates on their own. As soon as the NBA decided to remove the cap, commercial banks, who are struggling to meet the regulatory limit of credit to capital plus deposit ratio of 80 percent, jumped into competition to give higher interest rates. Janata Bank Ltd announced 12 percent rate few hours after the cap was lifted, while Machhapuchhre Bank Ltd moved a step forward next day by offer 12.5 percent interest rate. Kumari Bank Ltd is now offering the highest interest rate of 13 percent. 

The interest rate hike has sent ripples in the stock market which was already on a bearish trend. Frustrated with the continuous decline of stock prices in recent months, some stock investors have even warned to launch protest against the government, demanding reforms in the market. 

Private sector leaders were also worried with the competition among bank and financial institutions (BFIs) to raise fixed deposit rates, stating that such move would pass the additional cost on the borrowers.

The committee has been asked to present its recommendation to the ministry within seven days. 

“The committee will analyze the current trend of monetary and capital market. The interest rates are skyrocketing which is not a good sign for the economy while the stocks are on a downward trend, brewing discontent among investors,” Ram Sharan Kharel, an adviser at the finance ministry, told Republica. “This committee will first identify problems and recommend to the government necessary long-term actions to keep the interest rates stable and address volatility in the stock market,” he added.

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