The weighted average interest rate paid by the general public while taking loans from banks and financial institutions was 7.85 percent last June. This is the lowest in the last 13 years. Rastra Bank started calculating the weighted average interest rate of deposits and loans from 2069 (year 2012). The average interest rate on loans last June was the lowest since then.

experts claim that the interest rate of last June was the lowest so far. Rashtra Bank officials say that interest rates were not so low before 2069. The weighted average interest rate on loans in June 2019 was 12.40 percent. In the financial year 2077/78 June, the average interest rate of loans in banks and financial institutions was 8.43 percent.

Since then, interest rates on loans have been on the rise. In the financial year 2079/80 February, the average loan interest rate reached 13.03 percent. Since then the interest rate started to decrease again. The interest rate that began to decline from that point was 9.93 percent in June 2081. Last June, the average loan interest rate dropped to 7.85 percent.   

"Rashtra Bank has started calculating the weighted average interest rate since 2012. Since then, the average interest rate of loans has been at its lowest point since last June," said a senior official of Rashtra Bank.

According to this, from 2023 to 2046, the National Bank used to determine the interest rate of loans and deposits. Banks and financial institutions used to collect deposits and provide loans based on the same interest rate. But after 2046, the National Bank has stopped setting the interest rate directly. The responsibility of determining the interest rate in the sector has been left to the banks. Although not directly, through instruments such as spreads, base rates, ordinary and fixed deposit interest rates, the circular mercury has not stopped controlling deposit and loan interest rates.  Nar Bahadur Thapa, the former executive director of Nepal Rastra Bank, said that the interest rate of loans has come down very low and when the interest rate is low, the income of the depositors will decrease as well as the investment will go to unproductive areas. In such a situation, the economic growth rate is not high because there is a risk of investing in areas where investment returns are low. Hundi business flourishes as there is a possibility of capital flight out of the country when the interest rate is low. Those who do illegal transactions will get help,' he said.   

According to Thapa, the existence of more liquidity in the market for two and a half years means that the economy is in a 'liquidity trap'. Being in a liquidity trap means that there is more liquidity in the economy, the interest rate is very low and in such a situation there is no possibility to reduce the interest rate or there is no condition to speed up the economy by reducing the interest rate,' he said. Finance policy should be active to make the economy run here.' 

Since last June, the interest rate of banks' deposits has decreased. According to this, the interest rate of deposits of commercial banks has decreased on average in August compared to July. For August, the minimum average in ordinary savings of commercial banks is 2.76 percent and the maximum average for the term is 3.84 percent.

According to this, the average minimum of 3.49 and maximum of 3.59 percent in one-year term deposits for August. Interest rate has decreased in August compared to last July. The average interest rate on ordinary savings of banks was a minimum of 2.77 percent and a maximum of 3.90 percent last July. 8 out of 20 commercial banks in operation reduced the interest rate on personal deposits for one year in August. One increased the marginal rate while 11 kept it steady. At the same time, in August, 6 banks reduced the interest rate of ordinary deposits, while 14 banks kept it constant.

Banks and financial institutions have been reducing interest rates on deposits every month saying that liquidity has been maintained for a long time. In the financial year 2077/78 June, the average interest rate of deposits in banks and financial institutions was 4.65 percent. Since then, the interest rate increased to an average of 8.51 percent in January 2079. After that, the interest rate started to decrease and remained at 4.19 percent until last June, according to the data of Rashtra Bank.

National Planning Commission member Prakash Kumar Shrestha said that the government and the private sector have got a good opportunity to increase investment as the interest rate is probably at its lowest level so far. When the interest rate is too low, depositors will be discouraged, capital flight and the real interest rate will be negative. Attention should be paid to this," he said. "At this time, the government should also increase investment in the development and construction sector, including infrastructure."

Instead of giving it to public institutions, they can raise money from the market by issuing bonds themselves. Due to this, the burden of debt will not be added to the government, he says, there will be no procedural hassles like the government. In June 2082, the average base rate has been maintained at 6.02, 8.03 and 8.97 percent respectively.

In June 2081, the average base rate of commercial banks was 8 percent, development banks 9.71 percent and finance companies 11.21 percent. In June 2081, the weighted average interest rate on deposits of commercial banks was 5.77 percent, that of development banks 6.63 percent and that of finance companies 7.93 percent. In June 2082, the interest rate of these deposits has been maintained at 4.19, 4.88 and 6.01 percent respectively. 

In June 2081, the weighted average interest rate of commercial banks' loans was 9.93 percent, development banks' 11.34 percent, and finance companies' 12.55 percent, while in June 2082, the weighted average interest rate of loans remained at 7.85 percent, 8.95 percent, and 10.22 percent, respectively, according to Rashtra Bank data. Rastra Bank has been continuously withdrawing money from the market for two and a half years.

After accumulating loanable amount (excess liquidity) in the financial system, the National Bank is drawing money through various monetary instruments for management. Rastra Bank last sent money to the market through repo on 23 Chait 2079. Since then, funds have been withdrawn from the market every week as required. According to the Rastra Bank, 319 trillion 84 billion 15 million rupees were withdrawn from the market 1,075 times during that period. 

Due to the problems seen in the economy, due to the lack of demand for loans, the National Bank has stated that since there is a situation of excess liquidity in the financial system, liquidity has been being extracted (withdrawing money) from the market for a long time. There was a slowdown in the economy due to various reasons. This led to a reduction in effective demand, due to which the demand for credit also decreased. However, remittances were coming in well.

imports also did not increase as expected. Due to the lack of credit demand, there was more liquidity,' said Kiran Pandit, spokesperson of Nepal Rastra Bank, 'As it is the work of Rastra Bank to maintain stability in interest rates, the interest rate corridor is being operated for that. According to the same process, liquidity is extracted from the market from time to time as needed.'

Experts say that the economy is in a state of 'liquidity trap' due to long-term excess liquidity, low interest rates and the lack of conditions to make the economy viable by further reducing interest rates. Interest rates have fallen to their lowest levels so far.

According to the directives of the National Bank, banks and financial institutions can provide loans up to 90 percent of deposits. Banks must keep a minimum of 20 percent of deposits in cash for potential savings returns. By reducing the amount of cash to be kept, banks and financial institutions can provide loans based on CD ratio up to 89 percent. According to this, in the last fiscal year, there was an average excess liquidity of more than 6 trillion in the financial system. This trend has continued even after the start of the new financial year.