I am getting confused whether it increases or decreases the liquidity in the market. While NRB came up with this to provide relief to strained economy which means they were targeting for higher liquidity. But bankers association have a different say on this.

Can someone help me out on this? Also I am hearing rumors that interest rates is going to be hiked or banks are cancelling out share loans. I did call few banks yesterday and they said they don’t provide share loans anymore.

More at: r/NepalStock by roshamns

  1. It’s a bit confusing. In simple terms,more credits means more liquidity in market.
    Can anyone here clarify in brief from economic/banking perspective about this matter?

  2. I consider this to be a double edge sword. This ratio is placed to ensure that bank maintain their deposit, lending & capital to a certain limit. NRB has changed this ratio so, now bank are more free to maintain their loans & deposit. On bright side, this will ensure stability in interest rate than before and there’ll be more money floating in Nepal economy.

    But on bad side, there will be imbalance in distribution of money, meaning certain sector will skyrocket than other sector, similar to whats happening to stock market now. Inflation’ll likely rise as price of house, land, stocks, foods , etc will goes up. Little bit of Inflation is very good for economy but there lies another problem. Peoples income has really increased after Covid but price of commodity has. This is a red flag. If Banks are not careful, chances of their bad-debt will rise now.

    Nepal who is highly dependent to import has managed to decrease import debt in lock-down since very few things were coming inside the country. But now, things have changed. The latest lending & deposit report by NRB, shows that people are withdrawing money in huge number. Plus Bank are more free to loan out. If all these money, ends up going outside Nepal as we import more & more, there’ll be disaster in our economy. Country will run out of money. Hence, people concerns about about ratio decrease.

    In this end, this’ll depend on how people will utilize their money. If money stay inside Nepal then very good but if money start leaving Nepal then very bad.This policy sound very good on paper but we have to wait and watch how effective this’ll be when implemented in our economy. If things start to go wrong direction, the NRB will step up to control it so, overall I’m not too worried about this.

    As for stock market, this is my personal opinion, market’ll goes down as lending/deposit report was bound to happen as country re-open slowly. But I don’t think great crash’ll happen but just profit booking/correction. People do tend to over-react in these situation.

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