Inter Bank Rate slides to 0.6%; easing liquidity good news for active investors

ShareSansar, March 12:

Nepal Rastra Bank has published the revised Inter Bank Rate (IBR), which was slightly above 4% a couple of weeks back, suggesting a new rate of 0.6% at which banks can lend each other.

It is noteworthy that for much of the year, the IBR has hovered around 1 percent or below.

The NRB’s move may have been prompted by the release of around Rs 500 crore into the market from its own coffer. NRB, which had absorbed a huge amount of money from the banking sector as a way to limit surplus liquidity over the past several weeks, is freeing up some of the money as liquidity tapers.

In addition, the NRB is in the process of releasing around Rs 25 arba into the banking sector in less than one month.

Also, the banking sector is currently flush with money common investors put in to buy shares of mostly hydropower companies that floated their IPOs. IPOs of Upper Tamakoshi and Barun Hydropower Company where oversubscribed by multiple times, inundating the banks with huge amount of investors money.

But the liquidity resulting from the money injected into the banking sector following the IPOs is likely to be temporary as the money generated from investment in IPOs will have to be deposited at Nepal Rastra Bank within a week as part of regulatory requirement.    

Meanwhile, the reduction in IBR hints at easing liquidity which automatically translates into the easy availability of money in the market. Such a scenario is bound give a boost to the investment climate in secondary market.

Although the impact of IBR is not generally seen on interests applied by banks on the end consumers immediately, persistence of a trend forces banks to adjust their rate of interest on both loans and deposits.
It is also noteworthy that from the beginning of the current fiscal year, increase in loan rates has been comparatively higher than deposit rates.