IMF suggestions ignored
January 20, 2009: The commercial banks of the country have rejected the recommendation made by the International Monetary Fund (IMF) to realign the interest rates in Bhutan with minimal difference with India.
In a report, the Royal Monetary Authority (RMA) said it is necessary to keep least difference in interest rates in two countries to prevent unnecessary pressure on the Indian rupee reserve and avoid capital flight.
However, the commercial banks including Bhutan National Bank and Bank of Bhutan rejected the idea saying the markers in two countries are very different and that reducing the interest rates in Bhutan would not be practical.
The commercial banks say reducing interest rates for lending would put threats to their survival owing to small market. The banks have vast differences in interest rates for lending and deposits.
Though RMA has clarified it would not interfere with interest rates maintained by commercial banks, it has hinted at acting strong if a huge difference is maintained through its monetary tools like the Capital Reserve Ratio (CRR) and treasury bills.
There fears are out in the market that Bhutanese banks might loose market one Indian banks like Pubjab National Bank starts operating in the country providing loans at low rates and inviting deposits at high rates.