Interbank Lending Rate down to 2-months low of 0.82%; NRB says banks have Rs 23 arba excess liquidity
Thu, Feb 16, 2017 2:22 PM on Latest, Featured, Others, Stock Market,
Interbank lending rate between commercial banks has come down to a 2-months low of 0.82%. On December 9, 2016, the weighted-average interbank lending rate between commercial banks was at 0.88%, the lowest it has been in the last previous months when banks were beginning to feel the shortage of liquidity. It was at its highest point of 7.05% on January 26, 2017.
NRB’s governor, Dr. Chiranjibi Nepal, said that banks were able to collect over Rs 71 arba in deposits in the period between Magh 13 and Magh 29. Only Rs 15 arba has been disbursed as loans in this period. Last week, NRB had instructed the banks to prioritize credit disbursement in productive sector.
Likewise, NRB has also said that the government is gradually increasing its expenses. “The government has over Rs 2 kharba in its savings at NRB. However, the government is increasing the rate of expense, so the liquidity problem can be expected to be solved soon”, said an NRB official.
Further, more than Rs 67 arba is being refunded to the applicants of primary issues starting this week.
What does this mean for stock market?
Banks were short of loanable funds due to the cap in CCD ratio of 80%. With the tight liquidity situation, most of the commercial banks are offering good interest rates to the general public on fixed deposits in order to gain more liquidity. The banks are mostly offering 10% to 12% annual interest on fixed deposits.
History has shown us that there is an inverse relationship between stock market growth and interest rate on deposits provided by the banks. Whenever there is a rise in this interest rate offered by banks to its depositors, market reacts negatively. Since the recent hike in interest rate is mainly due to the shortage of liquidity in the banking system, it can be expected that banks will gradually reduce the interest rate on deposits.
And since banks and financial institutions are now generating further liquidity, this may be a signal that banks will not need to provide higher interest rate to general public on deposits. If this happens, investors can expect the stock market to grow.
NRB’s governor, Dr. Chiranjibi Nepal, said that banks were able to collect over Rs 71 arba in deposits in the period between Magh 13 and Magh 29. Only Rs 15 arba has been disbursed as loans in this period. Last week, NRB had instructed the banks to prioritize credit disbursement in productive sector.
Likewise, NRB has also said that the government is gradually increasing its expenses. “The government has over Rs 2 kharba in its savings at NRB. However, the government is increasing the rate of expense, so the liquidity problem can be expected to be solved soon”, said an NRB official.
Further, more than Rs 67 arba is being refunded to the applicants of primary issues starting this week.
What does this mean for stock market?
Banks were short of loanable funds due to the cap in CCD ratio of 80%. With the tight liquidity situation, most of the commercial banks are offering good interest rates to the general public on fixed deposits in order to gain more liquidity. The banks are mostly offering 10% to 12% annual interest on fixed deposits.
History has shown us that there is an inverse relationship between stock market growth and interest rate on deposits provided by the banks. Whenever there is a rise in this interest rate offered by banks to its depositors, market reacts negatively. Since the recent hike in interest rate is mainly due to the shortage of liquidity in the banking system, it can be expected that banks will gradually reduce the interest rate on deposits.
And since banks and financial institutions are now generating further liquidity, this may be a signal that banks will not need to provide higher interest rate to general public on deposits. If this happens, investors can expect the stock market to grow.
