Nepal Rastra Bank has unveiled the monetary policy for this fiscal year.
Governor Maha Prasad Adhikari has presented monetary policy at 4pm today. As Adhikari has hinted earlier, the policy’s nature is contractionary aiming to tighten liquidity through different instruments bringing various policy level changes. The decreasing foreign currency reserve and increasing trade deficit has compelled NRB to tighten credit expansion for import purpose in particular.
One major policy change is implementation of countercyclical buffer which would require banks and financial institutions to provision more as capital buffer before expanding credit or distributing bonus. This tied with NRB’s policy to control private sector credit expansion to 12.6% only as compared to 19% previous year explains contractionary nature of monetary policy.
Policy aims to limit inflation to 7% in line with budget statement. NRB has increased bank rate to 8.5%, policy rate(repo) to 7% and deposit collection rate to 5.5% under interest corridor. Similarly Cash Reserve Ratio is increased to 4% from 3% while Statutory Liquidity Ratio (SLR) is increased to 12& for commercial banks, 10% to development banks and finance companies. This requirement has to met by Poush 2079.
Policy has been liberal to capital market however. The lower cap of 40 million from 4-12 cap on margin lending has been removed with an individual able to take 120 million loan of margin nature from single bank now. Similarly, risk weighted exposure has been reduced to 100% for share loan below 5 million. NRB has also removed the provision to halt trading of companies which have decided to merge or are being acquired.
Another notable point from monetary policy is that interest rate will vary for credit provided to productive sector and business sector. The move is aimed to reduce huge trade deficit caused by excess import of goods ad services rather production within the country. Similarly, NRB has directed BFIs not to charge penal interest on principal and interest amount for credit below 50 million for entrepreneurs if they are repaid within Asoj 2079.
