Interests worry industrialists

Industrialists have said that the increased interest rates banks were charging would raise their cost of production and ultimately market prices. Banks have hiked the interest rate on lending as they are paying more for liquidity. The banking system has been beset by a cash crunch which has not eased even after an injection of Rs. 25 billion by Nepal Rastra Bank over the last two months..

A banker said that interest rates on lending had increased by 1-2 percent in recent days. Some banks have already imposed their new interest rates and some are informing businessmen that they would be increasing the rates soon.

Pradeep Jung Pandey, vice president of the Federation of Nepalese Chambers of Commerce and Industry said that the banks he was dealing with informed him that the interest rates would go up by 2 percent from mid-January. "I have been informed that the interest rates would go up to 12 percent from around 10 percent I have been receiving loans at," he said. "This will increase the cost of production of our industries at least by 5 percent and this will cause inflation to go up," he added.

The country's inflation went up to 9.9 percent in the fourth month of the current fiscal year for the first time after a continuous decline for three months of the year. Inflation had reached 9.3 percent in three months, according to the latest report of NRB on the country's economy. Industrialist Diwakar Golchha said that he was getting loans at 8-8.5 percent until recently, and the banks he was dealing with were informing him that the rates would go up from mid-January. He, however, said that the big banks were yet to revise their interest rates.



He was of the view that industries would be hit hard further by the increased interest rates given that the industries were hit hard by load-shedding, labour problems and other infrastructure-related problems. Managing director of the K.L. Dugar Group Kumud Dugar sad he had to pay 10-11 percent interest now although he was getting loans at around 7-8 percent. "Some banks already imposed the new interest rates and some have informed us that they are going to charge higher rates soon," he said.

He said that the relatively low interest rates of Nepali banks were the only advantage for Nepali agriculture-based industries against the Indian ones and the hike in the interest rates would make Nepali industries uncompetitive. "It may help in increasing Indian agriculture products to flood the Nepali market as Nepali products will be more expensive as a result of the increased cost of production," he said.

A banker, however, said that the increased interest rate would not make a huge difference to well operating industries although he supported the idea that it would definitely cause the cost of production to go up. However, an increased cost of production for export industries would not help the central bank's policy of discouraging imports and reducing the ballooned trade deficit of 48 percent.
Source:eKantipur