KATHMANDU, Dec 1: After Nepal Rastra Bank (NRB) adopted flexible monetary measures, the base interest rate of commercial banks has come down to as low as 5.53 percent.
The reports unveiled by the 20 commercial banks show that Standard Chartered Bank Nepal has fixed its base lending rate at 5.53 percent for the current month between mid-November and mid-December, down from 5.73 percent in the last month. Overall, the base rate has declined to 7.243 from 7.443 in the review month.
As Nepal Rastra Bank (NRB) adopted optimum flexibility in its monetary policy, the banks have adequate liquidity. However, banks are unable to expand their businesses as they are skeptical to issue more loans due to soaring non-performing loans while the demand for loans has also plunged due to economic slowdown.
Revised interest rate corridor system introduced
As of last week, commercial banks collected deposits of Rs 5.893 trillion, while their lendings stood at Rs 4.691 trillion. This shows that they are having Rs 1.202 trillion in excess to mobilize in the economy.
Since May 2024, banks have been maintaining their average base rate in single digits. Despite a notable decline in the lending rates, banks have been unable to expand their loan portfolio.
A bank’s lending rate is determined by adding a certain premium rate to its base rate. Based on the nature of lending and risk factors, banks add a premium between 1.5 percent and 5 percent on top of the base rate when they provide loans to their clients.
The central bank has not made any major changes in its first review of the monetary policy for the current fiscal year. Announcing the review of the monetary policy on Friday, the NRB stated that it has given continuity to the flexible measures of the monetary policy while maintaining that management of the available liquidity is sufficient to support economic growth in the present context.
Gunakar Bhatta, executive director of the NRB, said the first review of the monetary policy aims to maintain price stability and external sector stability.
“As the policy rate is already on the lower side, the central bank is prudent about the risk that it could drive up the inflation rate," Bhatta said.
The macroeconomic report of the NRB shows that the consumer price inflation rose to 4.82 percent in the third month of the current fiscal year, with the average price of food and beverage increasing by 7.18 percent. The government has targeted to tame the inflation rate to 5.5 percent for the current FY. “The central bank has expected that the monetary policy tools at present will be able to maintain the price stability and external sector stability,” said Bhatta.
