September 26: Finance Minister Janardan Sharma has taken initiative to control the spiraling interest rates. Although the jurisdiction of regulating the monetary and financial market rests with the central bank, Finance Minister Sharma has overlooked this issue and formed a high-level committee to study the interest rates.

The committee headed by Joint Secretary Baburam Subedi, who is also the chief of the Economic Policy Analysis Division of the ministry, will not only study the interest rates but also the Working Capital Loan Guidelines issued recently by the Nepal Rastra Bank.

Finance Minister Sharma has said that the ministry will take further steps as per the recommendation of the committee.

The committee has one representative each from the Office of the Prime Minister and Council of Ministers, Nepal Rastra Bank, National Planning Commission and the Ministry of Industry, Supplies and Commerce.

The finance minister’s private secretariat informed New Business Age that the committee also has one representative each from the Federation of Nepalese Chamber of Commerce and Industry, the Confederation of Nepalese Industries and Nepal Chamber of Commerce while the banking sector is being represented by two members of Nepal Bankers Association.

The committee has been instructed to submit its report within seven days.

The committee will recommend how much concession or relief needs to be provided on interest charged by banks. The committee formed by the finance minister is questionable because banks have the right to determine interest rates as per the automated system in a free market economy. Even if the government has to issue any directive to change the interest rates, the jurisdiction falls within the central bank.  Analysts argue that the decision of the finance minister to form the study committee is against the laws.

Former  Executive Director of Nepal Rastra Bank Trilochan Pangeni says that the finance minister’s decision to form the study committee is against Nepal Rastra Bank Act. He insists that the Nepal Rastra Bank Act has given the central bank the right to determine the interest rate.

“If the finance ministry intervenes in matters related to Nepal Rastra Bank, it undermines the autonomy of the central bank. There is risk that the central bank will become like a department of the ministry,” said Pangeni.

On the other hand, another former Executive Director of NRB Nara Bahadur Thapa says that it is better to take action after conducting a proper study instead of taking decisions at somebody’s whims.

“It is not necessary that all the policies adopted by the central bank will be right. The finance minister has taken the right decision,” said Thapa.

Banks have increased the interest rates effective from September 17.

Finance Minister Sharma had held hours long discussion at the ministry on Sunday after the industrialists and entrepreneurs complained that the central bank didn’t intervene when the banks decided to increase the interest rates.

The entrepreneurs had strongly objected to the high interest rates and the Working Capital Loan Guidelines.

“The banks have increased the premium and excise duty against the agreement with the customers. This is not acceptable at all,” said Shekhar Golchha, president of the FNCCI.

He said that the regulatory body should intervene in such situation and requested for help from the ministry and the central bank.