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NRB’s latest move to bring down lending rates

NRB’s latest move to bring down lending rates
In what can be seen as a measure to offer some relief to the borrowers affected by the persistently high-interest rates, the Nepal Rastra Bank (NRB) has allowed the banks and financial institutions (BFIs) to make changes to the lending rates on a monthly basis. Issuing a new circular on Monday, NRB said that BFIs can change interest rates on loans every month from now on abolishing the arrangement that required BFIs to change lending rates only once a quarter. While BFIs have been allowed to make changes in deposit interest rates every month, they had to wait till the end of the quarter regarding the lending rates.

"While changing the interest rate of the loan, it should be changed monthly up to the limit of the increase or decrease in the average base rate of the last three months," reads the NRB circular.

According to NRB, BFIs can change the loan interest rate for the month of Jestha (mid-May to mid-June), based on the change in the average base rate of the months of Falgun, Chaitra, and Baisakh. Bankers have said that lending rates will decrease from Jestha. Commercial banks have reduced the fixed deposit interest rate from 11 percent to 9.99 percent in Baisakh (mid-April to mid-May). The interest rate of institutional fixed deposits has also been reduced from 9 percent to 7.99 percent. Savings account interest rates have also been reduced. However, lending rates have remained unchanged due to the previous arrangement of NRB. With the central bank introducing a new provision, the deck has been cleared for the BFIs to change the loan interest rate from Jestha. Everest Bank CEO Sudesh Khaling said that banks would reduce the loan interest rates starting from mid-May. "We have already reduced the deposit interest rate in Baisakh but due to the obligation to calculate the base rate on a quarterly basis, we had to wait until July to reduce the lending rates," he said. "After the central bank came up with the new arrangement, lending rates will decrease from mid-May." When BFIs hike the interest rate on deposits, their cost of funds also increases, pushing the base rate to go up. Currently, the base rate is the main tool to determine the lending rate in Nepal. Banks have been determining the lending rate by adding a premium to the base rate. Banks started reducing interest rates on deposits in mid-January. As their cost of funds decreased, the base rate also decreased accordingly. According to the latest decision of the Nepal Bankers' Association, banks can determine the interest rate by adding a maximum of 5 percent premium to the base rate. Bankers say that the demand for loans has been subdued due to higher interest rates. With the base rate starting to decline, borrowers can get loans at cheaper interest rates in the coming days. According to Everest Bank CEO Khaling, the new provision will benefit customers more than the banks.  

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