Interest rates correction must to achieve 8.5% economic growth: FNCCI president
KATHMANDU, July 9: Private sector leaders have advised the Nepal Rastra Bank (NRB) to bring the monetary policy for the upcoming fiscal year – FY2019/20 with a focus on maintaining the interest rates stability.
Speaking at a discussion program organized by the NRB to solicit suggestions from various stakeholders for the upcoming monetary policy, business leaders and executives have asked the central bank to bring provisions in the policy to tame the skyrocketing interest rates of bank and financial institutions (BFIs).
“The government has set a target of 8.5% of growth rate for the upcoming fiscal year. To achieve that target, private sector’s businesses should also expand at a massive level,” said Bhawani Rana, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). “This could not be possible in the current scenario when the lending rates for businesses have skyrocketed.
The monetary policy should help in lowering the borrowing cost,” she added.
The demand of the private sector leaders come in the wake of the central bank’s preparation to bring the monetary policy for the upcoming fiscal year. While the interest rates have been on an upward trend for the last two years amid shortage of the lendable fund in the banking sector, private sector leaders say that any delay in the correction of interest rates could weigh on the growth momentum.
The NRB is planning to release its monetary policy for Fiscal Year 2019/20 on July 12.
According to Rana, the NRB should bring down the average interest rates spread to 3%, restrict banks from charging premiums on base rate higher than one percentage point and revise the base rate formula.
The demand for lowering lending rate was echoed by other leaders of business organizations.
Kamalesh Agrawal, general secretary at the Nepal Chamber of Commerce, urged the NRB to bring the expansionary monetary policy to help private sector securing adequate financing facilities from BFIs. “The central bank should fix the lending rates at the range of 7% to 9%,” said Agrawal.
“The banking sector’s cartel should be on setting interest rate cap of lending rate, not the deposit rate,” he added, referring to the recent ‘gentleman agreement’ of commercial banks through Nepal Bankers’ Association (NBA) on capping deposit rates.
However, NBA President Gyanendra Dhungana said that they want the market to determine the interest rates. “We do not want to do agreement on capping interest rates on deposit. That is something the market should do,” said Dhungana, adding that they have set the cap to stop interest rates from going through the roof.
Anal Raj Bhattarai, convener at Banking and Finance Committee of the Confederation of Nepalese Industries (CNI), said that the central bank should allow BFIs to float loans below the base rate for those borrowers with good credit rating.
“The base rate should only work as the reference rate, allowing banks to extend loans below that rates to those who have high credit rating,” added Bhattarai.