Balance interest rate

I read Raghav D Pant’s article “Emerging problems; capital flight and interest rates”

published in THT on April 11 with particular interest. To verify his claims, I checked the fixed saving rates on deposits offered by banks in India and Nepal. Indian banks are giving average of six per cent interest on fixed deposits up to one year, whereas our banks are giving only three to four per cent for similar deposits. Indeed, there is a wider risk of capital flight from Nepal into India. Already worsening domestic investment climate at home has caused many businessmen to siphon their money earned in Nepal to India for safety. To add to this, now we have a wider difference in interest rates with India.

We have decided to peg our currency with Indian rupee for our own good. However, as a trade off for this safety brought by fix exchange rate, we have given up our flexibility to

dictate the interest rate. What I find intriguing is how come our financial policy-makers are

being naïve to this fact and letting domestic interest rate suffer. As long as we maintain our interest rate higher or at par with that of India’s, it will not have adverse effect.

However, the moment our interest rates are lower than India’s there is a huge risk of capital flight. Current decline of remittance earning from India as reported by the central bank is only a symptom and if Nepal Rastra Bank does not act in time it will soon precipitate into a balance

of payment crisis situation with India as surmised by Dr Pant. This may even lead to

devaluation of Nepali rupee against Indian rupee as speculated by some quarter of Nepali media couple of months back. And there is no need to elaborate on the economic, social and political cost of such a move to the nation. For now, the central bank has a tougher task ahead balancing the interest rate. Is our newly sworn governor listening?

G B Banjara, via e-mail

Perseverance

The news “A street cart made millionaire” about a 50-year-old fruit seller, Chameli Bhurtel, of Bardiya district published in THT on April 13 was a motivating news item. Such news can have immense potential to influence a lot of poor people to work hard and also serves as a good example at a time when the country is suffering from violence. We need people like Chameli. Her effort symbolises dedication and honesty. The news also threw light on the role of NGOs like Rural Reconstruction Organisation that are engaged in genuine works for the benefit of the poor.

Jeeban Thapa, Basundhara

Joint fund

Though Nepal has been receiving heavy foreign aid for over decades, both the public and private sector has been complaining for a long time about the shortage of funds because of which development works and projects are in limbo. Also, why is it that nobody has thought of making use of tremendous amount of money that has been lying useless in the commercial banks? It will be a prudent step to establish an association of commercial banks so that each bank could contribute jointly to create a large fund to help run various profitable development

projects. This could avoid the pressure of sanctioning of loans, high interest rates etc. that can actually pose a hurdle if anybody else other than the bank associations carried such projects. Meanwhile, the risk of bad debts is zero for the banks. The government should also

waive certain tariffs and taxes by analysing the projects so as to encourage development

activities.

Amit Subedi, Samakhusi