Nepalese Monetary Policy 2019/20

Major Provisions in Nepalese Monetary Policy 2019/20

• Consumer price inflation to be contained within 6 percent.
• Maintain foreign exchange reserves sufficient to cover the prospective imports of goods and services for at least 7 months in 2019/20. 
• Facilitate the economic growth of around 8.5 percent as targeted by the annual budget of the government of Nepal. 
• Growth of broad money (M2) set at 18 percent. 
• Domestic credit and private sector credit growth rates are 24 percent and 21 percent respectively. 
• Nominal anchor of monetary policy : currency peg with IC. 
• Operating target of the policy: interbank rate of the BFIs. 
• The band for the interest rate corridor revised downwards to 3-6 percent from 3.5 to 6.5 percent. 
• Policy rate reduced to 4.5 percent from 5 percent.
•  CRR kept unchanged at 4 percent. 
• SLR kept unchanged at 10 percent for commercial banks, 8 percent for development banks and 7 percent for finance companies. 
• Bank rate reduced to 6 percent from 6.5 percent. 
• Refinance rates reduced. 
• Sources and conditions of external borrowing by the BFIs extended. 
• Provision for foreign currency fixed deposits with at least 2-year maturity from institutional foreign depositors and Non-Resident Nepali introduced. 
• Limit for deposit mobilization from a single institution by the BFIs reduced to 10 percent of their total domestic deposit liabilities. 
• Commercial banks required to issue debentures of at least 25 percent of their paid-up capital by mid-July 2020. 
• Policy provision for the mobilization of gold held by Nepali citizens as bank deposits. 
• Requirements of priority sector credit for the BFIs kept unchanged. 
• Requirement for deprived sector credit kept unchanged at 5 percent of total credit. 
• Spread rate between the lending and deposit rate to be brought down to 4.4 percent by mid-July 2020. 
• Incentives for merger and acquisition provided. 
• Provision to regulate and supervise the Systemically Important Banks (SIBs). 
• No need to take approval from NRB to open branchless banking centers in those wards where there is no bank branch. 
• Standard for Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to be issued. 
• Provision to be made for the Nepali BFIs to open branches abroad. 
• Basel II will be fully implemented in development banks and finance companies. 
• MFIs will be allowed to open one branch in sub-metropolitan city or district headquarter only after opening one branch in the municipality and rural municipalities excluding the metropolitan, sub-metropolitan and district headquarters. 
• MFIs required to disburse one-third of total credit to agriculture sector. 
• Incentives for the merger and acquisition of the MFIs. 
• Policy of gradually reducing cash transactions. 
• Real Time Gross Settlement system (RTGS) will be brought into operation within the current fiscal year. 
• Payment service providers will be encouraged to expand financial access in remote areas. 
• No additional fees from customers in the POS transactions. 
• BFIs required to keep Cash Deposit Machine (CDM) for collecting deposits. 
• Provision to refund 10 percent of the value added tax (VAT) stated on the invoice directly to the payer's bank account if the payment is made through card or electronic means. 
• Provision to be made to regulate and supervise the licensed institutions involved in foreign currency transactions. 
• Necessary provision to be made to regulate overseas foreign exchange expenses on studies and group travels. 
• Separate foreign currency exchange counter facilities by the BFIS at major tourist destinations. 
• Read the monetary policy in detail below.