BFI's update interest rates for Kartik; How will the change affect NEPSE?

Commercial Banks, Development Banks, and other financial institutions have updated the interest rates for the month of Kartik.

Following Nepal Rastra Bank's instruction to update the interest rates profile for a month beforehand, the BFIs have updated the rates today on the last day of Ashwin. The update will be effective from Kartik 01.

When we look at the updates of commercial banks, it is evident that no bank has increased the interest rates on savings. They have either maintained the previous rates or have decreased a bit. This shows that the Nepalese economy still has excess liquidity, a result of increased savings and decreased borrowings.

When we look at the rates on fixed deposits, the data seems multidirectional. Some banks have increased their rates on fixed deposits while some have decreased. Nonetheless, most have maintained the previous rates. However, it can't be denied that most have increased the interest rates on fixed deposits with a longer maturity period. 

The base rate update is of great interest to stock investors. Declining base rate means investors can expect further cut in the interest rate offered by the banks. This is because interest rates and the stock market have an inverse relationship: one goes down when the other goes up and vice versa. The recent uptrend of NEPSE can be partially attributed to the excess liquidity in the economy and the slashing of interest rates that followed.

On the other side of things, banks are still operating on the base rate maintained as of Bhadra's end. Thus, the new base rates will be updated only after the end of Ashwin. Since today is the last day of Ashwin, expect to get new base rates updates in a few days.

As a result, investors are keeping a watchful eye on what happens to the liquidity in the economy and the interest rates. As of now, the unchanged or decreased interest rates on savings indicates that the liquidity imbalance hasn't improved.