Declining interest rate to propel share market
KATHMANDU:
Declining interest rate might give the capital market — that has been dogged by higher interest rates in the money market — much needed respite.
The experts are hopeful that possible interest rates decline as brought about by the easing liquidity situation in the recent months might finally make the investors come back to capital market. “The interest rates going down will definitely boost the share market as higher interest rate is the factor that investors are shying away from the market,” said president of Stock Brokers Association of Nepal Anjan Raj Poudel.
The share market players have been attributing higher interest rates as the factor that has dried up investment in securities. As the return on shares have been contracting since some time back the investors found 12 per cent deposit interest rate as more profitable shifting their funds to the banks.
According to the recent trend, inter-bank lending rate and interest rate on Treasury Bills (TB) are waning so that the both deposit and lending interest rate will eventually go down as well. “If the interest rates come down to acceptable level, the loan against shares might also get increased giving additional boost to the market,” pointed out Poudel.
“The trend shows that interest rates might be declining as liquidity has been expanding since some time back,” said spokesperson at the central bank Bhaskar Mani Gyanwali. According to central bank, the deposit with financial institutions has grown by 8.2 per cent amounting to Rs 788 billion by the end of the last fiscal year.
During the last three months, the weighted average inter-bank rate has come down from 12.2 per cent on April 15 to 3.4 per cent on July 20, according to Nepal Rastra Bank (NRB) data.
The interest rates on 28 days Treasury Bills has also come down from 9.7 per cent to 8.4 per cent while interest of 91 days Treasury Bills has seen downward revision from 9.6 per cent to 6.6 per cent, the central bank data revealed.
The central bank only revised Cash Reserve Ratio (CRR) by 0.5 percentage points in the Monetary Policy but did not change bank rate — that is still fixed at seven per cent — that could bring down the interest rates.
However, the central bank is implementing Open Market Operation (OMO) to ease liquidity to bring consequent decline in the interest rate, according to the Monetary Policy. Open Market Operation uses repo and reverse repo auctions, respectively, to inject and absorb the liquidity from the financial system. The auctions use Treasury Bills as the instruments that are bought by the central bank from banks and financial institutions to supply liquidity.
“It may be a while before the capital market starts to perform in line with the declining interest rate,” stock market analyst Rabindra Bhattarai said, hoping the timely budget might increase the government expenditure further helping the liquidity situation.
“Despite, the growing deposits and easing liquidity, financial institutions may not revise the interest rates accordingly,” he expressed, pointing out that the market movement depends on the annual financial report of the financial institutions that will be published soon.
Source: THT
Declining interest rate might give the capital market — that has been dogged by higher interest rates in the money market — much needed respite.
The experts are hopeful that possible interest rates decline as brought about by the easing liquidity situation in the recent months might finally make the investors come back to capital market. “The interest rates going down will definitely boost the share market as higher interest rate is the factor that investors are shying away from the market,” said president of Stock Brokers Association of Nepal Anjan Raj Poudel.
The share market players have been attributing higher interest rates as the factor that has dried up investment in securities. As the return on shares have been contracting since some time back the investors found 12 per cent deposit interest rate as more profitable shifting their funds to the banks.
According to the recent trend, inter-bank lending rate and interest rate on Treasury Bills (TB) are waning so that the both deposit and lending interest rate will eventually go down as well. “If the interest rates come down to acceptable level, the loan against shares might also get increased giving additional boost to the market,” pointed out Poudel.
“The trend shows that interest rates might be declining as liquidity has been expanding since some time back,” said spokesperson at the central bank Bhaskar Mani Gyanwali. According to central bank, the deposit with financial institutions has grown by 8.2 per cent amounting to Rs 788 billion by the end of the last fiscal year.
During the last three months, the weighted average inter-bank rate has come down from 12.2 per cent on April 15 to 3.4 per cent on July 20, according to Nepal Rastra Bank (NRB) data.
The interest rates on 28 days Treasury Bills has also come down from 9.7 per cent to 8.4 per cent while interest of 91 days Treasury Bills has seen downward revision from 9.6 per cent to 6.6 per cent, the central bank data revealed.
The central bank only revised Cash Reserve Ratio (CRR) by 0.5 percentage points in the Monetary Policy but did not change bank rate — that is still fixed at seven per cent — that could bring down the interest rates.
However, the central bank is implementing Open Market Operation (OMO) to ease liquidity to bring consequent decline in the interest rate, according to the Monetary Policy. Open Market Operation uses repo and reverse repo auctions, respectively, to inject and absorb the liquidity from the financial system. The auctions use Treasury Bills as the instruments that are bought by the central bank from banks and financial institutions to supply liquidity.
“It may be a while before the capital market starts to perform in line with the declining interest rate,” stock market analyst Rabindra Bhattarai said, hoping the timely budget might increase the government expenditure further helping the liquidity situation.
“Despite, the growing deposits and easing liquidity, financial institutions may not revise the interest rates accordingly,” he expressed, pointing out that the market movement depends on the annual financial report of the financial institutions that will be published soon.
Source: THT
