Interest on Repo Increases to 8.5 Percent

July 29: With the increase in the policy interest rate announced by the Nepal Rastra Bank through the monetary policy of the current financial year, the interest rates in the market has started to increase for a short-term period. After the implementation of the new policy rate by the Nepal Rastra Bank, the interest rate of inter-bank transaction and repo as well as the discount rate of treasury bills have also increased.

Banks have offered interest up to 8.55 per cent for the repurchase agreement (repo) issued by Nepal Rastra Bank on Thursday.

Banks have bid as much as Rs 60 billion for a repo of Rs 30 billion. Out of the 87 bids from 21 institutions, the minimum interest rate was 8.2 per cent, and the average interest rate was 8.38 per cent, said NRB Spokesperson Dr Gunakar Bhatt.

In the last fiscal year, Nepal Rastra Bank issued repo worth Rs 70 billion three times. Back then, the banks had offered a maximum interest rate of 4.8 per cent only. In the current fiscal year, the NRB has introduced a policy of tightening credit by increasing interest rates. In the monetary policy, the bank rate has been increased by 1.5 percentage points to 8.5 per cent.

The deadline for standing liquidity facility (SLF) taken by banks for liquidity management has also been reduced by 2 days and is now fixed at 5 days. Similarly, the policy rate has increased from 5.5 per cent to 7 per cent, and the deposit collection rate has increased from 4 per cent to 5.5 per cent. 

Although NRB has not issued instructions to implement these provisions, it has already increased the interest rate, which has affected the market.

Even though the NRB has increased the policy rate, the interest rate of inter-bank transactions has also reached 8.48 per cent. The interbank rate was less than 7 per cent until the central bank increased the policy rate.

Earlier, there was a provision to change the policy rate only after the NRB issued a directive, but this year it has already been implemented before issuing such directive.  Spokesperson Bhatt said that the policy rate announced by the NRB through the monetary policy has already been implemented by the concerned department.