Key Takeaway of Monetary Policy 2079/80

Nepal Rastra Bank unveiled the much awaited monetary policy of 2079/80 on Friday, 22 July 2022. In order to control the rising inflation and reviving the decelerating economy, the central bank has taken policy to control the expansion of credit and also to reduce wide money supply.

Key takeaways of Monetary Policy 2079/80:

• As suggested by the annual budget, the central bank will aim to keep inflation at 7%.
• Manage the monetary and external sectors in such a way that sufficient foreign exchange reserves are maintained to meet the import of goods and services for at least 7 months for the fiscal year 2079/80.
• Has dropped the credit expansion target of 19% to 12.6%.
• The rates under the interests rate corridor have been increased by 1.5% points and the bank rate has been maintained at 8.5%, the policy rate at 7 % and the deposit collection rate at 5.5%.
• If average interbank interest rate varies by more than 2% with policy rate, repo/reverse repo auction will be announced and if lower by more than 3 % deposit collection auction will be announced.
• Open market stabilization fund will be implemented to manage liquidity.
• Standing Liquidity facility (SLF) will be made available for maximum 5 days and maximum outstanding up to 1% of average deposits of previous week of respective BFI's
• Lender of Last Resort facility will be provided to BFI's having difficulty in managing liquidity by adding 2% penal in bank rate.
• Cash reserve ratio (CRR) has been increased from 3% to 4% which is to be implemented from 1st of Bhadra 2079.
• Statutory Liquidity ratio (SLR) has been increased to 12% for commercial banks and 10% for development banks and finance companies . It should be maintained by the end of Poush 2079
• Implementation of Countercyclical Capital Buffer from Shrawan 2080.
• Concessions and facilities related to mergers and acquisitions provided by the central bank will be available to commercial banks and microfinance institutions if they merge with their own categories and conduct integrated transaction by the end of 2079.
• Has increased the bank rate from 7% to 8.5%.
• The interbank lending weighted average rate can be maximum within 2% range of the policy rate i.e. 7%.
• The suspension of securities transactions during mergers and acquisitions of BFI's have been cancelled and will be arranged in accordance with the regulation of SEBON.
• The Risk Weight assets for a share loan below or equal to Rs. 25 lakh is 100% and for above Rs. 25 lakh is 150%.
• Loan against share will be kept Rs 12 Crore per bank as well as in total.
• The ratio between the fair market value of the loan and the mortgage security shall be maximum 30 % for Kathmandu valley and 40% in other places.
• Debentures issued by BFI's up to the end of Ashad 2080 can be counted for the purpose of calculation of Credit to Deposit (CD) Ratio.
• Difference in interest rate for loans to productive and commercial sector. Arrangement to provide loan  up to Rs 2 crore to productive sector such as food production, livestock, fisheries, export and manufacturing industries using 100% domestic raw materials, will be made with interests rate maximum up to base rate plus 2%.
• Microfinance companies can issue debentures as per their capital fund.
• Enterprise businesses that have availed loan up to Rs. 5 crore from BFI's will not be charged penal interest if loan principal and interests are paid by the end of Asoj 2079.
•  Arrangement to be made to determine the interest rate by adding a maximum of 2% points to the base rate for loans disbursed to private sector for construction of IT and industrial parks.
• Bank Account compulsory for foreign exchange service.