According to initial estimates reckoned by the NRB, the total interest income for the fiscal year 2008/09 is likely to be something around Rs three billion rupees whereas such income during the last fiscal year was Rs 5.20 billion.
“We have already informed the Minister of Finance that the estimated dividend from the NRB to the government is likely to be less by Rs 2 billion in the coming fiscal year,” said a high-ranking official of the NRB. The NRB handed over Rs 3.38 billion worth of dividend to the government last year. Interest earned by investing US$ 2 billion worth of foreign currency reserves is the main source of income of the central bank.
The whopping decline of interest rates in the US dollar has remained the main factor responsible for low income of the NRB, said the official. The interest income from US dollars that represents 70 percent of the total reserve maintained by the NRB has plunged to 0.25 percent from 3.5 percent recorded last year. Even the Federal Reverse fund rates have slipped to less than one percent whereas it was 2 percent in mid-July 2008.
As per the foreign currency regulations of the NRB, the central bank is required to invest at least 25 percent of the reserve in the US Treasury Bills. “Currently, about 30 percent of the US dollar denomination reserve has been invested in US Treasury Bills,” said the official.
Likewise, British Pound comprises 15 percent of the total reserve while Euro represents 10 percent, according to the central bank. The interest rate of other currencies has also declined markedly in the recent months, albeit in lesser pace than US dollar. The Interest on British Pound has also slipped to 2.5 percent from 5.75 percent recorded last year while such interest rates for Euro have also plunged to 2.5 percent from 5.5 percent last year.
The official also revealed that the central bank has started exploring other investment avenues to make up for the some portion of the likely losses in income. We are exploring other ‘highly secure’ investment sectors that offer higher interest rates than we are getting right now, he said, adding, hinted that the NRB is exploring foreign exchange tools available in India.
Related story
Revised interest rate corridor system introduced
