NRB to issue new bonds at lower interest rates

KATHMANDU, MAR 29: 

In sync with the waning interest rate in the financial market, the central bank will soon issue the latest batch of development bonds at a lowered coupon rate.

Nepal Rastra Bank (NRB) — public debt manager of the country — will issue Development Bond 2071 ‘Gha’ worth Rs 6.5 billion at 8.5 per cent coupon rate. 

The bond will mature by March 2015. The last lot of development bonds with a three-year maturity period issued by central bank in May 2011 yielded a 9.5 per cent coupon rate. Moreover, in June 2011, NRB had issued 

a five-year National Saving Bonds 2073 worth Rs 6.68 billion at 10 per cent coupon rate. 

“NRB issues bonds at a rate compatible with the market rate. At present, interest rates are lowering so we have slashed the coupon rate of the bonds,” said spokesperson of NRB Bhaskar Mani Gyanwali, adding that 

last year, interest rate was increasing due to the liquidity problem in financial institutions but now the situation has improved and interest rates are being dropped gradually.

Earlier, the interest rate for bonds was so low that it did not even compensate the rate of inflation for investors.

Globally, the interest rate of government bonds determines the overall direction of interest rates in the financial markets but that is not the case in Nepal. 

“Our bond rate only indicates the general direction of interest rates but there is no obligation for banks to follow our rate,” pointed out the central bank spokesperson.

The bonds issued by the government are largely held by financial institutions to maintain Statutory Liquidity Ratio as per NRB’s regulation or by institutional depositors as an investment option.

Financial institutions are being marred by excess liquidity and an absence of proper projects to finance. The banks’ income through investment in short-term securities and inter-bank lending has also dried up as short-term interest rate is hovering as low as 0.6 and 0.7 per cent as of mid-February. 

“The bonds will provide financial institutions an instrument of investment to absorb the excess liquidity to some extent,” pointed out Gyanwali.

The government has expected to raise Rs 37.41 billion through internal borrowing this fiscal year to meet its budget deficit. According to the central bank’s public debt calendar, NRB is expected to sell treasury bills worth Rs 16 billion, development bonds worth Rs 16 billion, national savings bond worth Rs 5 billion, citizen saving bond worth Rs 1.4 billion and foreign employment bond worth Rs one billion.

Source: THT