Kathmandu, Nepal – Interest rates in Nepal’s banking system have dropped again this month. The average return on bank deposits is lower in Magh compared with last month. This is due to weak demand for loans and high cash held by banks.
Out of 20 commercial banks, most have cut the interest rate on one-year fixed deposits. The average maximum rate investors earned in Poush was about 4.84%, but now it has fallen to around 4.69% for Magh. Ordinary savings rates also eased.
Bankers say people and businesses are not asking for loans as much as expected. Because of this, banks have more money than they can lend out. When loans don’t grow, banks keep extra funds with the central bank or hold cash instead of lending. This is one reason Interest Rates in Nepal are declining.
The Nepal Rastra Bank (NRB) is taking steps to manage the extra liquidity. It has withdrawn money from the market by selling long-term government bonds (debt securities). In the last two weeks, the central bank pulled about Rs 200 billion from the financial system through these bonds.
Officials say this is part of an ongoing effort to keep the banking sector balanced. Because deposit money keeps rising while loan demand stays weak, the NRB wants to reduce excess cash so that markets stay stable.
Experts warn that if interest rates keep falling and people avoid borrowing, economic activity could stay slow. They say stronger credit demand is needed for growth and investment.
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