Nepal Rastra Bank Mid-Year Review Shows Satisfactory Monetary Policy Implementation

Kathmandu. The implementation of the monetary policy set for the current fiscal year 2082/83 appears satisfactory. The Nepal Rastra Bank (NRB), while unveiling its mid-year review on Tuesday, stated that inflation remains under control and foreign exchange reserves are at a much higher level than targeted.

While the target for the average annual consumer inflation for the current fiscal year was set to be limited to around five percent, it has been reported that the average inflation in the first six months was limited to 1.70 percent.

Similarly, against the target of maintaining foreign exchange reserves sufficient to cover at least seven months of imports of goods and services, the reserves as of Poush 2082 were adequate to cover 18.1 months of imports. According to the central bank, in line with the policy to manage the interest rate corridor, the bank rate has been reduced to 5.75 percent and the policy rate to 4.25 percent, while the deposit facility rate remains unchanged.

To manage the structural liquidity in the banking system, the NRB injected liquidity amounting to approximately NPR 200 billion in multiple instances during the month of Poush 2082. While the projection was for broad money supply to increase by 13 percent during this period, it only grew by 5.4 percent in the first six months. The projected 12 percent growth in credit flowing to the private sector saw only a 3.8 percent increase during the review period.

The NRB stated that various policy arrangements have been implemented with the objective of maintaining financial stability and promoting economic activities. The limit for overdraft loans disbursed by banks and financial institutions has been increased to NPR 10 million, and the limit for loans disbursed against collateral by microfinance institutions has been set at NPR 1.5 million. Furthermore, arrangements have been made to revise the loan repayment schedule according to the borrower's needs.

During the review period, the risk weight on Trust Receipt (Import) loans has been reduced, facilitation has been made in the loan classification system, and by amending the regulations related to foreign investment and foreign debt management, the IT industry has been allowed to invest up to US$ 20,000 abroad, the NRB stated. Similarly, the process for bringing in foreign debt and repatriating earnings from investments has also been facilitated.

Moreover, the NRB announced that the cash transaction limit has been reviewed, and the system has been implemented requiring payments of NPR 500,000 or more to be mandatorily made via an 'account payee check' or bank account.