Nepal Rastra Bank had made the mid-term review of monetary policy public on February 17, 2022. The policy has largely focused on maintaining external sector as well as overall stability. It has raised the policy rate and plans to gradually withdraw the facilities provided during the COVID crisis to the hard-hit sectors. The main provisions in the review are :
Monetary Policy Stance
- In view of the existing pressure on liquidity as well as the external sector, monetary management will focus on external sector as well as overall economic stability.
- Keeping in mind the stress on external sector, the relief measures provided to the COVID affected sectors will be gradually reduced and such measures will be directed to those sectors that were hard hit during the COVID crisis and are yet to revive.
- Financial resources will be mobilized towards output growth, employment generation and entrepreneurial development in order to internal as well as external balance.
Monetary and Financial Measures
- As a signal of monetary tightening, the existing bank rate has been increased from 5 percent to 7 percent.
- In regards to the interest rate corridor, the SLF facility rate has been increased to 7 percent, repo rate has been increased to 5.5 percent and deposit collection rate has been increased to 4 percent.
- The cash reserve ratio and statutory liquidity ratios, however, have been kept unchanged.
- The maximum interest rate that the banks and financial institutions can charge from customers on the refinance facility provided by the NRB has been increased to 7 percent from 5 percent.
- A study will be conducted with a view to keep the interest rate on productive sector lower than the interest rate for other sectors. Such a provision will be implemented as a test program from the coming trimester in one of the sectors.
- Risk weight will be revised for the trust receipt loan, personal hire purchase loan, personal , overdraft, real estate loan regarding the plotting of land and margin nature loan.
- The infrastructure development will be allowed to issue energy bond.
- The minimum requirements for credit flows from the banks and financial institutions in the specified priority sectors such as agriculture, energy and MSMEs will be revised keeping in mind the specialties of the banks and impact of COVID-19.
- The existing provision for importing goods from India on credit will be revised.
- The existing provision for opening the foreign currency account for the Non-Resident Nepalis will be revised.
- The existing limit for the agents and sub-agents of the remittance companies for domestic transfers will be revised.
The Nepali version of the document can be accessed here.
The blogger can be reached at : siddhabhatta@gmail.com
