Interest Rate Vs Inflation

Rate of interest in the financial market plays a crucial role for the growth and stability in the economy as it directly affects the cost of capital. High rate of interest on lending makes capital costlier resulting in the contraction of business activities. Conversely, low market interest rate makes credits cheaper and helps to boost business activities in the economy. Under the current liberal financial sector policy adopted by Nepal Rastra Bank (NRB), the market rate of interest is determined by the demand and supply of loanable fund in the financial market. The supply of loanable fund depends on the deposit collection of bank and financial institution while the demand is made by the business and household sectors.