October 3: Short-term interest rates in the market are continuously decreasing due to the inability of banks and financial institutions to provide loans. Despite the increase in liquidity in the banking system, the short-term interest rates fell to a low point because Nepal Rastra Bank did not use monetary instruments as per the announcement made in the monetary policy.
On Monday, the interest rate of treasury bills fell below 3 percent. The interest rate of treasury bills had exceeded 12 percent in the previous fiscal year. Similarly, the interbank interest rate has been maintained at around 2 percent for the last 2 weeks. As the short-term interest rates fell, the government is raising domestic debt at a low rate.
On Monday, the government renewed treasury bills worth Rs 18.5 billion. Among them, the interest on 28-day treasury bills worth Rs 5 billion has been maintained at 2.90 percent, while that of 91-day treasury bills worth 7.75 billion is 5.05 percent and 5.34 percent for 182-day treasury bills worth Rs 5.30 billion.
The interest rates of all treasury bills have decreased compared to last week. Last week, the average interest rate of 28-day treasury bills was 3.44 percent, while it was 5.35 percent for 91-day treasury bills and 5.39 percent for 182-day treasury bills.
In order to increase the credit flow of the banks, the government has given the facility to the banks to count the amount of accumulated funds of the local level as deposits. However, as the demand for loans in banks is not encouraging, there is competition among banks to bid for government bonds.
In the current fiscal year's monetary policy, NRB announced that the upper limit of the interest rate corridor will be 7.5 percent and the lower limit of the deposit collection rate will be 4.5 percent, keeping the average interbank interest rate within the limit. In order to maintain the interest rate corridor, there is a provision for NRB to use various monetary instruments. However, even though the interbank interest rate has dropped below the required limit, NRB has not mopped excess liquidity from the market.
NRB has been using the excess liquidity of banks to raise government bonds. Due to this, the cost of internal debt of the government has decreased.
The average interest rate of development bonds, which was 8.64 percent last year, has dropped to 6.96 percent in the current year.