Commercial Banks Keep Interest Rates Stable: Why This Happened and What It Means

Commercial Banks have unveiled the interest rates profile for the month of Poush.

As a probable effect of the gentlemen agreement done among bankers a few days ago, commercial banks have kept their interest rates profile fairly unchanged. The maximum interest rate on fixed deposits provided by commercial banks is 10.05%, with Standard Chartered Bank as an exception. SCB has only 9.5% as its maximum interest rate on fixed deposits.

It is to be noted that most banks had maintained a maximum rate of 10.05% already in the month of Mangsir. Thus, it seems that those that had lower rates have met with other banks to maintain a stable maximum rate of 10.05% for Poush.

While this might be a result of the gentlemen agreement, the actual liquidity scenario in the nation's banking system is struggling. Commercial banks have continuously reported a fall in deposits collected each week along with a simultaneous increase in lending. This has resulted in a shortage of liquidity in the banking system.

While this problem would be solved by raising interest rates, hence attracting more deposits, raising the rates has a simultaneous negative impact. This translates to higher interest payment for borrowers and businesses, which is conducive to investment and growth. This is a prime reason why the central bank slapped limits on commercial banks from raising their interest rates steeply.

The change in interest rates was of great significance to investors in NEPSE, since the rise in interest rates has a negative effect on the capital market. With the banks keeping the rates constant, at least for the upcoming month, it is reasonable to guess that investors have been consoled a bit.

As of writing, the secondary market is 13 minutes into today's trading session. The NEPSE index has gained 29.47 points and is at 2,448.32.