KATHMANDU, JULY 23

Nepal Rastra Bank has made public the Monetary Policy for the current fiscal year, 2023-24. The central bank, through the policy, has dropped the policy rate and kept the mandatory cash ratio and the statutory liquidity ratio of banks and financial institutions intact. Similarly, the bank rate is unchanged while the bidding rate in deposit collection has been decreased.

According to economist Dilli Raj Khanal, while the Monetary Policy has been relaxed to some extent, it is not as anticipated. 'The rate of credit expansion - set at 11.5 per cent - does not look positive, while it has been decided to increase broad money by 12.5 per cent in this financial year. As the ratio of credit flow to the private sector including their financial assets is higher than the country's GDP, the radius of Monetary Policy's effect on the country's economy, private sector, and investment has ballooned. Although some policies related to cooperatives and investment of external funds by banks have been made flexible along with a decrease in interest rates, it is still unclear if the Monetary Policy can achieve the expected outcome and support economic growth,' Khanal said.

The central bank has set a target to expand credit flow to the private sector by 11.5 per cent in the current fiscal year, a slight decrease from last year's target of 12 per cent, of which only 50 per cent was met in fiscal 2022-23.

Also, citing the current internal and external economic scenario, the central bank policy rate has been reduced by 50 base points to 6.5 per cent.

The bank rate has been kept intact at 7.5 per cent while the bidding rate in deposit collection has been slashed to 4.5 per cent from 5.5 per cent.

According to NRB, secondary market transaction and bidding in the deposit collection will remain open if the weighted interbank interest rate considered the operation target by the NRB is higher than the bank rate and lower than the deposit collection rate.

Similarly, the provision of permanent liquidity facility in the bank rate and the overnight liquidity facility in the policy rate has remained unchanged. There will be a provision of providing permanent deposit collection at the lower limit of the interest rate corridor for making the interest rate corridor effective, according to the central bank.

According to Sunil KC, president of the Nepal Bankers' Association, the Monetary Policy seems balanced considering the global uncertainties and rise in the country's fiscal deficit at present.

'The Monetary Policy is expected to adjust the slowdown seen in the economy from certain aspects.

Similarly, the introduced policies related to working capitalpolicy, home, and margin loans are expected to ease the stalled processes faced in the past.

The Monetary Policy is also expected to positively support credit demand. With the decrease in policy rates, there are indications of interest rates decreasing,' KC told THT.

The central bank has also decided to facilitate the establishment of a separate regulatory body to regulate cooperatives as announced by the government in the budget for the current fiscalyear 2023-24.

Meanwhile, the central bank has increased the limit for taking out first loan for residential homes from Rs 15 million to Rs 20 million. Based on the suggestions of banks and financial institutions, there will be a necessary review of the guidelines related to operational loans.

Also, Nepali citizens visiting countries other than India will be provided up to $2,500 twice a year as passport facility.

KC also shared that the Monetary Policy is also expected to assist in stabilising the fiscal market as a result of new provisions introduced by the central bank. 'A 'Stressed Loan Resolution Framework' has also been introduced, which is expected to assist in financial stability. However, the target of expanding credit growth by 11.5 per cent, which amounts to about Rs 600 billion, could be challenging,' KC added.

As per NRB, the International Monetary Fund has predicted that the world's economic growth will remain weak in 2023 and will see some improvement in 2024.

In 2023, despite the improvement in the world's price situation, funds are projected to remain high. Although the price growth rate is decreasing, it is still higher than the target, so the developed and emerging countries have continued to tighten their monetary policies.

A version of this article appears in the print on July 24, 2023, of The Himalayan Times.