Kathmandu, Apr. 18: 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 has then reduced the bank rate from 11 to 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 projection 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 Bikash Banks as well as other institutions that offer micro-credit facilities to poor people in the rural areas. The interest rate on such loans has been reduced to 6.5 per cent which previously 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 done 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 commercial 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.