NRB issues govt bond with highest rate

HIMALAYAN NEWS SERVICE


KATHMANDU: The central bank is issuing its latest bunch of bonds at 10 per cent coupon rate in sync with the increasing trend of interest rate that might lead to yet another rate hike in the market.

“We are issuing the bond at the prevailing interest rate in the financial market,” said spokesperson of the central bank Bhaskarmani Gyawali.

Nepal Rastra Bank is issuing National Saving Bonds 2073 worth Rs 6.68 billion at 10 per cent coupon rate.

The bond will mature in five year in July 2016. The interest rate is the highest so far among the bonds as

previously the interest yield of the bonds ranged around nine per cent only.

“The banks and financial institutions are offering about 15 per cent of interest on fixed deposit thus central bank also has to offer more interest to make it marketable,” he explained.

It will also be the first bond in recent years that will yield real interest to the purchasers. By purchasing the bonds that yield the interest less than rate of inflation, bond owners actually were losing money.

Discounting the rate of inflation that stand at 9.5 per cent at present, the bond purchaser will gain 0.5 per cent as real interest from it provided inflation does not flare out more than 10 per cent.

The attractive interest rate of these gilt-edged securities that are considered to be the safest option for investment are not much popular among the general public. The government bond market in Nepal is mostly dominated by institutional buyers such as banks and financial institutions.

The bonds issued by the government are largely held up by the financial institutions to maintain Statutory Liquidity Ratio (SLR) as per Nepal Rastra Bank’s regulation or by institutional depositors as investment option.

Moreover, the secondary bond market is virtually non existent.

Of the total bond worth Rs 6.68 billion, bonds worth Rs 1.68 billion are kept for general public while banks and financial institutions can apply for the rest amounting to Rs 5 billion.

The budget deficit worth Rs 33.68 billion for the fiscal year 2010-11 is expected to be covered through public debt but the government’s inability to spend coupled with late budget has made it not mandatory.

According to Nepal Rastra Bank issue calendar, the central bank has planned to issue treasury bills worth Rs 10 billion, development bonds worth Rs 8 billion, citizen saving bond worth Rs 10.68 billion and foreign employment bond worth Rs 5 billion in the current fiscal year to cope with the fiscal deficit.