Kathmandu. There is a strange contradiction in the banking system of Nepal. On the one hand, banks have reduced the interest rate on loans to the lowest point in history, while on the other hand, businessmen are afraid to increase their investment by taking loans. <\/p>\n
Generally, when interest rates fall, both investment and consumption in the market should increase. However, in the current situation of Nepal, this principle seems to be completely ineffective. <\/p>\n
In the last three years, the average lending rate of commercial banks has come down to 6.90 percent. Providing loans at such a cheap interest rate should be a golden opportunity for investors. But the reality of the market is different \u2013 banks are now stocked with liquidity worth about Rs 12 trillion. Which has not been properly consumed. <\/p>\n
According to Nepal Rastra Bank officials, the consumption situation in the current market is not disappointing. But it doesn’t look promising. There is some movement in the market due to the high inflow of remittances from foreign employment. However, domestic production and spending capacity have declined. <\/p>\n
According to the Nepal Rastra Bank’s statistics, annual inflation is limited to around 3.5 percent. Keeping inflation under control and reducing interest rates is the best time for consumers to spend. According to experts, when interest rates fall, depositors prefer to spend money in the bank and invest it in other productive areas rather than taking less interest. However, in the current situation, consumers are also confused about ‘save or spend’, due to which consumption has not been able to expand as expected. <\/p>\n
Although the deposit growth in banks has been satisfactory, credit to the private sector has shrunk to 4.5 percent. Industrialists and businessmen are not planning to establish new industries or expand the ongoing projects. Instead, they have adopted a wait-and-see strategy of paying off old high-interest loans, saving cash and monitoring market conditions. <\/p>\n
According to experts, there is a severe lack of confidence among investors. Businesses are not ready to take on more debt until demand in the market increases clearly and the economy is sure to pick up. As a result, money is deposited in the bank but not in the market. <\/p>\n
It has been analysed that the sluggishness of Nepal’s internal economy is not only due to internal reasons but also the external situation. Rising tensions in the Middle East and fluctuations in the price of fuel in the international market have made the Nepali market suspicious. <\/p>\n
According to economic experts, the increase in the price of petroleum products not only increases the cost of transportation, but also makes the cost of agriculture, construction and industrial production more expensive. “When the cost of transportation and production increases, it increases the price of goods in the market and eventually reduces demand,” said one expert. \u2019<\/p>\n
The main problem is not only the high interest rates, but also the lack of demand and confidence in the market. The government and regulatory bodies need to take concrete steps to bring the Rs 12 trillion stashed in the bank to the market. According to experts, the government needs to increase capital expenditure and send money to the market and make the private sector feel that there is a safe environment for investment. <\/p>\n
Unless domestic production picks up and big infrastructure picks up, it will be difficult to revive the economy with cheap interest rates. Therefore, the challenge now is to create jobs and demand by diverting the money from the bank’s coffers to industries and factories. <\/p>\n
On the other hand, the government’s low capital expenditure has also prevented cash flow in the market. The demand for construction materials has decreased due to the slowdown in development works. This has directly affected large sectors such as cement, iron and transportation. <\/p>\n
According to experts, unless the government creates demand in the market by increasing public spending, it will be difficult for the private sector to revive the economy. In order to reap the real benefits of cheap interest rates, investment-friendly environment, policy certainty and active economic presence of the state are imperative. Unless the general public and businessmen see a secure future, it will be difficult for the money in the bank’s coffers to come into the market. <\/p>\n
It has been analysed that the internal situation is not only responsible for the slowdown in Nepal’s internal economy but also the external situation. Rising tensions in the Middle East and fluctuations in the price of fuel in the international market have made the Nepali market suspicious. The increase in the price of petroleum products not only increases the cost of transportation but also increases the cost of agriculture, construction and industrial production. Experts say that when the cost of production increases and demand falls, investors are more likely to save their capital rather than invest more. \u2019<\/p>\n
For these reasons, investors are aware of the potential impact on tourism and foreign employment.<\/p>\n","protected":false},"excerpt":{"rendered":"
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