Central bank monitoring unpredictable lending rates

The governor said that the central bank has been closely monitoring the 'rising' lending rates.
"Though the central bank has already left the practice of fixing interest rates under liberal market economy, it is monitoring the rates closely and will not let the consumers suffer," said central bank governor Dr Yubraj Khatiwada here today at the Parliamentary committee on Finance and Labour Relations.
Lately, the banks and financial institutions (BFIs) have been increasing the lending rates claiming that their cost of fund coupled by asset-laibility mismatch has increased.
The committee -- led by Constituent Assembly (CA) member Hari Rokka -- has asked the central bank governor and finance secretary Rameshwor Khanal on how they can safeguard the consumers' interests from the unpredictable lending rates that has been steadily going up lately.
"The lending rates are bound to go up but not more than 12-13 per cent and there also has to be transparency," the governor said, adding that the rising cost of fund has fuelled the lending rates.
"The interest on deposit also should match the inflation rate, he said, however, in the competitive market spread rate -- between interest on deposit and interest on lending -- has to come down, which is not happening."
"Low interest rate has dried the deposit," finance secretary Rameshwor Khanal, said, adding that till last fiscal year the BFIs deposit was growing by 20 per cent. "But the deposit growth rate has come down lately.
"Delayed budget, low spending in donor-funded projects coupled by informal economy has squeezed the capital forcing the banks to increase the deposit rates that has pushed the lending rates up too.However, the finance ministry is serious on not letting the priority sectors hit by the rising lending rates hard, according to him.
"For the specialised sectors like Small and Medium Entreprises (SMEs) the central bank is also providing refinancing facility," Khatiwada said.
"One of the sectors that has bear the burnt of the rising lending rates is the hydropower sector," he said. "However for the hydropower the government has formed an Energy Fund in the budget with Rs 1 billion seed money."
"There has also been some problem in housing sector but it is not worse," he said, assuring that it could not hit the banking sector hard.
Of the total loan of Rs 500 billion, seven per cent is in housing sector, according to the central bank's figure. "If the housing prices drop to a half too, there will not be repayment problem."