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Interest Rates on Loans Rising Again

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Interest Rates on Loans Rising Again
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February 11: As interest rates on deposits have risen, so have interest rates on loans. Due to the liquidity crunch, banks are collecting deposits at high-interest rates. The rise of interest rates on deposits of commercial banks has also had a direct impact on the base rate and interest rates on loans.

According to Nepal Rastra Bank, the interest rate on loans extended by commercial banks has increased by 0.35 percentage points in one year. The weighted average interest rate on loans was 9.09 percent in January / February of last fiscal year (FY 2020/21). The weighted average interest rate on loans disbursed by commercial banks has reached 9.44 percent in the corresponding period of the current fiscal year.

With the opening of business in the current fiscal year, the demand for loans has started rising. As the demand for credit has increased, so have the interest rates of banks.

Former Executive Director of Nepal Rastra Bank Nara Bahadur Thapa says that the increase in interest rate helps maintain financial stability. He said that the increase in interest rates would have a direct impact on industry and trade, but would also help reduce the trade deficit.

"As interest rates on deposits rise, so does the cost of funds, and so does business loans. However, the trade deficit will not be reduced if interest rates are not raised as much as required,” he said.

If interest rates rise, the capital market will stop declining, Thapa said. According to him, the capital market has gone down in Nepal due to the low interest rates. Thapa said that it would be necessary to increase the interest rate of the banks to help the capital market to rise.

The weighted average interest rate on deposits of commercial banks has also increased by 1.37 percentage points in one year. The interest rate on deposits was 5 percent in December last year. The interest rate on deposits has risen to 6.37 percent in December this year.

Along with the rise in interest rates, the base rate of banks has also gone up. The base rate of commercial banks has increased by 1.25 percentage points in the current fiscal year compared to the previous fiscal year.

 

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