Finance Ministry and Nation Bank face to face on interest rate issue

The finance minister said the 'confusion' is about the troubled economy.  NRB says problems are there, not new

6 October, Kathmandu. It is seen that the tension between the Finance Minister and the Rashtra Bank will increase again over the increase in the interest rate on deposits. While the National Bank is insisting on increasing the interest rate, the government is in favor of not increasing the interest rate.

Banks have increased the interest rate on deposits with effect from October 1, following the incentives provided by the National Bank through monetary policy. Less than a week after the increase in deposit interest rates, Finance Minister Janardhan Sharma has come to the conclusion that he will interfere in deposit interest rates.

Speaking at the Palungtar Mahotsav in Gorkha on Wednesday, he said production would not increase if the money was kept in banks because of interest rates. He said that the government has started cutting interest rates.

Inaugurating the e-NADA show on Thursday, he went a step further and said that the interest rate discussion program has been fixed next week and he will reduce the interest rate. After the statement of Finance Minister Sharma that he would intervene in the interest rate, voices have started rising in its favor and opposition.

Officials of the National Bank of India say they will reduce the deposit interest rate, but this will not be possible immediately. The central bank, which has increased the bank rate by one and a half percentage points through the monetary policy of the current fiscal, has provided that the interest rate on instant deposits may come down further if the bank rate is further reduced in the circular. Is. Issued on 18 July for the implementation of monetary policy. The National Bank had said that this arrangement was made with the intention that after the increase in the bank rate, the deposit interest rate would also increase.

According to the existing rules of the National Bank, banks have to publish the interest rate of deposits for the coming month before the beginning of the month. Similarly, it has been arranged that the interest rate of the deposit will change only every month.

However, if there is any change in the bank rate, the deposit interest rate can be changed immediately based on that. When banks have already published the interest rate for October, they can reduce the published interest rate for October only, as per the directions of the Nation Bank. Rashtra Bank officials also say that changing the deposit interest rate within 7 days to 10 days is not positive.

However, this time Finance Minister Sharma said that since 15 per cent interest rate is available on deposits, how will they invest in production? They are arguing this.

‘Would production be possible in a country where you get 15 percent interest rate by keeping money in the bank? This is the problem and it has to be solved,’ he said at the opening ceremony of the e-NADA auto show on Thursday, adding ‘5/10 per cent of the profits in the industry, and 13 per cent in the bank. If you put it in the bank and invest in the land, it will double. And why use it in production?’

The statement of Finance Minister Sharma has given the private sector the power to advocate for reducing the interest rate of loans. The umbrella organization of the private sector, including the Federation of Nepalese Industries and Commerce, has been continuously opposing the hike in interest rates on deposits. On Wednesday, the Nepal Chamber of Commerce and Industry issued a statement opposing the hike in interest rates.

Financial sector experts say that continued pressure from the private sector may have also led the economy to the conclusion that interest rates should be reduced.

Otherwise, he argues, it is wrong for a person in a position like the finance minister to make public comments on the subject of market-determined interest rate controls.

However, it is difficult to reduce the interest rate even if the Finance Minister wants. This is possible only when the National Bank changes its policy. Financial sector experts argue that the finance minister’s interest and comments are unwarranted when the national bank is about to manage the economic challenge by raising interest rates.

Former Governor Deependra Bahadur Chhetri termed the statement of Finance Minister Sharma as the logic of Hachuwa. Chhetri says that when deposits are made in the bank, financial resources are collected.

‘They are saying that they will reduce the interest rate, even if they do what they can, but for what and for what purpose it can come, how will the government reduce the interest rate?’ “The central bank can issue policy directions and implement them accordingly,” he said. Instead of reducing the interest rate by the government, it comes down to the purpose of reducing it.’

On the other hand, Shaliram Pokharel, Financial Sector Adviser to the Finance Minister from National Bank to the Finance Ministry, says that the Finance Minister is of the view that the interest rate should be adjusted when it is seen that production cannot be invested. Is.

“The minister has a clear blueprint on how to move from a business based economy to a production based economy. In a plan to increase production and substitute imports, when the interest rate is high, it affects production. However, since the characteristics of the economy vary from country to country, it sometimes has to be controlled. This means that the central bank or the state will arrange the rate of interest as per the instructions for some time.

However, the Nation Bank is in favor of not proceeding as per the wish of the Finance Minister. Due to the suggestions and pressure given by institutions like International Monetary Fund and World Bank to raise the interest rate to control inflation, the National Bank is also encouraging to raise the interest rate.

Because of this, even though the banks themselves regulate the interest rate by mutual consent, the National Bank has repeatedly raised the bank rate and the policy interest rate, arguing that the interest rate should also be raised to control inflation. .

Even as the central bank encouraged banks to raise deposit interest rates, banks agreed not to increase deposit interest rates in July and August. However, when deposits from the banking system continued to drop and the CD ratio exceeded 90 percent and the Nation Bank took action, competition began offering higher interest rates in violation of published interest rates.

Banks revoked the consent and increased the deposit interest rate for October as directed by Rashtra Bank, following a complaint at Rashtra Bank. Banks have increased deposit interest rates in October following pressure from the National Bank and increased balance of financial resources.

However, after the Finance Minister Sharma stood against it, now the National Bank and the Finance Ministry are face to face on the issue of interest rates.

Source: OnlineKhabar

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Himal Sanchar