MoF’s study committee suggests not to reduce interest rates

KATHMANDU: The study committee formed by the Ministry of Finance has suggests that there should be no interference in determining bank interest rates.

In the last month, Finance Minister Janardan Sharma not only made efforts to reduce the interest rate, but for that he formed a study committee under the coordination of the joint secretary of the ministry.

Finance Minister Sharma has been publicly saying that he will reduce the interest rate in any way after the industrialists started protesting as the banks increased the interest rate when the lack of liquidity was increasing.

However, the committee formed by him has concluded that there should be no interference in determining bank interest rates. In order to meet the economic growth target of eight percent, the immediate, mid-term and long-term plans should be made to manage the liquidity and the interest rate should be set as the basis of competition between banks to keep the price growth target of seven percent within the desired limit, the committee concluded. This has left the bank interest rate market economy open.

The suggestion committee formed under the coordination of joint secretary of the Ministry of Finance, Baburam Subedi, submitted a report to Finance Minister Janardan Sharma on Monday. A member of the study committee said that the findings of the study will make it difficult to proceed with the finance minister’s plan to intervene in the interest rate.

“In the current economic environment, the target of limiting inflation to seven percent seems appropriate, banks and financial institutions should maintain efficiency and maintain interest rates based on competition,” the report said, “The provision regarding ‘variation’ of the guidance issued by Nepal Rastra Bank regarding current capital loans will be applied. Since the period has been moved after one year, it can be gradually improved and implemented.”

Finance Minister Sharma was displeased after the Nepal Bankers’ Association canceled the agreement on deposit interest rates and increased the interest rates with effect from September 17.

On his proposal, the financial sector high-level coordination committee meeting held on September 25, formed a committee to discuss, consult and analyze the country’s economic, financial and monetary situation (liquidity, bank interest rate and financial cost reduction) and submit a report with policy suggestions.

The committee has suggested that institutional deposits should be collected through open bidding by adopting a competitive method. Nepal Rastra Bank has arranged to maintain two percent lower interest rate on institutional deposits than on individual deposits. Similarly, the committee has suggested to conduct a bank ‘landing survey’ in a timely manner.

The committee has recommended to carry out institutional reforms in the monetary and financial sector, to increase efficiency in the industrial and commercial sector, while in relation to institutional deposits, it has suggested that competitive methods should be adopted through open bidding.

Similarly, the committee suggested improving the financial health of commercial banks, strengthening the regulation of banks and financial institutions, making the regulation of cooperatives effective, and conducting bank lending surveys in a timely manner.

It has given suggestions such as conducting time-bound survey related to the industrial scenario, developing the institutional capacity of the regulatory agencies and improving the study, research, leadership and regulatory capacity.