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Interbank Interest Rate Rises with NEPSE Trading

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Interbank Interest Rate Rises with NEPSE Trading
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June 19: Recent increase in share trading of listed companies and NEPSE index in the secondary market has activated the whole financial market of the nation. It has been signified by the growth of interbank interest rate which has been dormant for a long period. Along with the sharp increase of share transactions in the secondary market, interbank interest rate has also been consecutively increasing over the last few months. According to experts, it has proved the theoretical basis of the relationship between the share market index and short-term interest rate of financial mechanism.

The interbank interest rate of commercial banks has increased by 3 percent by mid-April 2016 compared to the same period of the last year. According to Nepal Rastra Bank statistics, the weighted average interbank interest rate was 3.44 percent in the Mid-April 2016 from 0.44 percent of Mid-April 2015. Such interest rate was 0.25 percent in mid-December. Similarly, the interbank interest rate in mid-April increased by 1.59 percent from the mid-March.  “With the increasing trend in the share market, number of investors who take loans from financial mechanism to invest in share market has also increased. It has raised both the loan demand and interest rate,” says an analyst. “When the cost of capital is low, demand of loans normally increases with the improvement in the share market that gives comparatively high return. Therefore, it is obvious to increase the interest rate with the increase in demand of loan,” he adds.

Although, the interbank interest rate between commercial banks has increased, the interbank interest rate of other financial institutions has decreased. The interbank interest rate of other financial institutions decreased by 1.16 percent in mid-April 2016 compared to the same period of last year. According to experts, commercial banks gained priorities in the interbank transaction than the other financial institutions with the availability of liquidity. Therefore, the interbank interest rate of other financial institutions has decreased. 

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