BY A STAFF REPORTER

Kathmandu, April 19: Nepal Rastra Bank (NRB) has reduced the bank rate from 9.0 to 7.5 per cent effective April 14.

It is almost two and a half years since NRB reduced its interest rate on loans it provides to the banking system. The central bank had then reduced the bank rate form 11 to 9.0 per cent.

The commercial banks, agricultural development banks and Nepal Industrial Development Corporation are entitled to this facility on the refinance loans they take from the central bank after making investments in the priority sectors.

“We hope that bank rate reduction will enlarge the demand for credit in agriculture, industry and employment generation sector as it is expected to reduce the interest rate on lending,” NRB Governor Dr. Tilak Rawal told a press meet here today.

Rawal said that readjustment of the bank rate would augment the credit access facility, employment opportunities and raise the income level but failed to make a projeciton about the elasticity of investment.

“We just want to give a signal that the commercial banks should lower their interest rates,” he said.

The central bank has also reviewed the interest rate on the refinancing loans to the Grameen Biksah as well as other institutions that offer micro-credit faqcilities to poor people in the rural areas. The interest rate on such loans has been reduced to 6.5 per cent which preivously stood at 9.0 per cent.

Rawal said that this provision would help promote the economic activities as the micro-credit institutions could provide loans at lower interest rates, as their cost of capital would go down.

NRB has also readjusted the interest rate on the refinancing loans it provides to the commercial banks for export sector loans. The interest rate for such loans is fixed at 6.5 per cent from the previous 7.0 per cent.

This is down with a view to encourage export trade, Rawal said.

NRB last year introduced a provision of refinancing commercial banks on export sector loans at 7 per cent. Under this provision, the commecial banks provided loans to the export sector at 10 per cent. According to the revised provisions, they are to flow credits at 9.5 per cent.

This provision will make Nepalese goods competitive in the international market by reducing the cost of production, Rawal said.

Meanwhile RSS adds, the measure is expected to bring down the interest rates on loans to the agriculture sector, industry and small scale self-employment programmes and help significantly in increasing income-generation and employment opportunities through larger flows of banks loans, said NRB governor Dr. Tilak Rawal.

Dr. Rawal said besides the new arrangement to cut down bank rates, the bank has also decided to lower the refinance rate on loans provided by rural development banks and other financial institutions disbursing micro crerdit to the rural sector and the economically poor section of the society from the earlier 9 per cent to 6.5 per cent.

According to information provided at the press conference, there has been a significant improvement in the country’s export sector in the last few years and provision for the new refinance and lending rates had to be worked out in order to encourage exports.

This facility would however be available to only those exporters who attain incremental export over their previous years’ export according to the NRB.

Similarly, the bank has also retained its provision of refinancing the preshipment and post-shipment loan to the exporters in foreign currency at 5.5 per cent interest rate. According to this provision, the banks are required to extend preshipment and post-shipment loan to the exporters at 7.5 per cent.