As liquidity eases, investors may have a reason to cheer

Kathmandu, June 13, 2013

There are signs that the liquidity crunch in the market might be easing.

Shortfall in deposits compared to loans disbursed had been straining the capacity of the banks and financial institutions to supply money into the market. However, the relief comes after the institutions that were reeling under shortage of funds succeeded in attracting more deposits by suddenly increasing the rate of interest on deposits.    

The interest rates, though, are expected to fall within a month.

Until now, some banks and finance institutions were struggling to maintain even the minimum CD ratio fixed by Nepal Rastra Bank. Though most of them have now been able to maintain the CD ratio, they haven’t been able to disburse loans as per the existing demand.

Despite the signs of easing of liquidity, however, the flow of money is expected to increase only after the release of the new budget that would to be followed by the announcement of a new monetary policy.

Low government spending and minimal rate of interest had led to the liquidity crunch. According to Finance Ministry, Rs 50 arab has been lying unused in the state coffer, which contributed to the liquidity crunch in the market.    

Also share market investors expect NEPSE to perform better with the easing of liquidity in the market. But investors would be cautious until they know that the improved liquidity situation is here to stay for a while.