KATHMANDU, JULY 12
The eagerly anticipated monetary policy for the fiscal year 2080/81 was publicly unveiled through the website of the Nepal Rastra Bank (NRB). The policy announcement includes several significant measures aimed at addressing the prevailing economic conditions and fostering financial stability.
Interest rate measures
The policy rate has been reduced by 50 basis points, bringing it down to 6.5 percent. This reduction is intended to promote borrowing and investments, thereby spurring economic growth. Meanwhile, the bank rate remains unchanged at 7.5 percent, emphasizing the central bank's commitment to maintaining financial stability and controlling inflation.
Deposit collection and liquidity management
To enhance liquidity in the banking system, the deposit collection rate has been lowered from 5.5 percent to 4.5 percent, encouraging banks to collect more deposits. The weighted average interbank interest rate will be utilized as the operational target to facilitate efficient interbank lending and borrowing, ensuring better monetary control.
Secondary market transactions and deposit collection
To promote liquidity management, if the weighted average interbank interest rate falls between the bank rate and the deposit collection rate, it will trigger the opening of secondary market transactions and encourage deposit collection initiatives.
Stability measures
The mandatory cash ratio and statutory liquidity ratio have been retained at their current levels. These ratios ensure that banks maintain a certain percentage of their deposits in the form of cash or liquid assets, contributing to overall financial system stability.
Enhancing interest rate corridor
Arrangements are being made to establish a permanent deposit collection facility at the lower limit of the interest rate corridor to strengthen its effectiveness. This measure enhances the central bank's ability to regulate interest rates within a specified range.
Reviewing risk weighting provisions for share mortgage and loans
In this year's monetary policy, no changes were made to the existing arrangements regarding share securities, maintaining the status quo from the previous policy. The previous policy's maximum limit of 12 crore rupees for a single customer to obtain margin loans from one or multiple licensed financial institutions also remains unchanged. Share investors' requests for eased share mortgage loan provisions were not addressed in this policy. However, the policy promises to review the risk weighting for share/securities loans, real estate loans, and higher purchase loans, aiming to make it more convenient for banks to provide loans on share securities within the 12 crore limit.
Real estate policy and loans
The Nepal Rastra Bank (NRB) maintains the previous policy in the real estate business for the current financial year. Loans on real estate mortgages are allowed based on a maximum of 30 percent of the fair market value in the Kathmandu Valley and a maximum of 40 percent in other locations. The NRB did not concede to demands to increase the credit limit to 70 percent on real estate mortgages, considering real estate as unproductive.
First home buyer loan limit increase
The NRB made a significant concession to the general public buying their first home by increasing the loan limit for first home buyers from Rs. 1.5 crore to Rs. 2 crore in the current monetary policy. This move aims to support and encourage first-time homebuyers, making it easier for them to enter the real estate market and own a residential property.
Regulating microfinance sector and overseas travel provisions
The NRB aims to reduce the number of microfinance institutions by encouraging mergers and acquisitions in the sector. Integration is expected to be completed by the end of Ashad 2081. The monetary policy also includes enhanced provisions for Nepali citizens traveling abroad, allowing them to receive up to USD 2,500 as a passport facility, an increase from the previous limit of USD 1,500. Additionally, licensed "A" class commercial banks can facilitate payments of up to one hundred thousand US dollars or other convertible foreign currency for air service providers abroad based on regulatory approval and prescribed documentation.
Controlling inflation and managing loan growth
The NRB's aim is to limit inflation to 6.5 percent in the current financial year. Monetary management strategies will be employed to maintain stable economic conditions and prevent price pressure from monetary expansion. To ensure financial stability, the NRB sets a growth rate limit of 11.5 percent for loans to the private sector, aiming to prevent excessive credit expansion and manage potential economic imbalances. The NRB's approach seeks to strike a balance between supporting economic activities and managing risks.
