Kathmandu: The commercial banks are responding to surplus liquidity by bringing down the lending interest rate, as expected.

Everest Bank Ltd (EBL) has reduced the interest rate on advances by 0.25 per cent on all the loan accounts where the rate is being charged above the base rate.

The financial market that suffered through tight liquidity is flush with cash at present. The tight shortage of loanable fund resulting from low deposits, the banks had shot up interest rates. In order to attract more deposits banks had started jacking up deposit interest as high as 10 per cent to savings account. The higher deposit interest translates as even higher lending rate. The banks are charging 17 plus percents interest for loans. However, as market is not struggling with low deposits interest rates are expected to go down.

“At present there is about Rs 30-35 billion excess liquidity with the commercial banks as a whole,” deputy governor of Nepal Rastra Bank (NRB) Gopal Kafle, adding that the central bank can expect to see more interest rates to ease in coming days.

EBL has stated that the interest rate revision is to encourage productive sector in order to influence and stimulate the market positively. Lowered lending interest rate in supposed to encourage the entrepreneurs and boost the market activities as well.

However, the revision in lending interest rate will also be accompanied with revision in deposit. As the demand for deposits will go down due to excess supply the deposit interest rates can also be expected to go down in the near future.

source: The Himalayan Times,9 Nov 2011