Monetary policy unveiled targeting seven percent economic growth, flexible measures introduced
Kathmandu: Nepal Rastra Bank has introduced a flexible monetary policy for the upcoming fiscal year 2083/84 with the objective of supporting the government’s target of achieving seven percent economic growth.
Nepal Rastra Bank Governor Dr. Bishwanath Poudel unveiled the monetary policy on Tuesday, stating that it has been introduced to support the economic growth initiatives taken by the government.
Governor Poudel said that banks and financial institutions have provided loans of around Rs 600 billion in the upcoming fiscal year and will help achieve the government’s growth target by expanding lending by 11 percent, or Rs 652 billion, in the coming fiscal year.
Nepal Rastra Bank spokesperson Guru Prasad Poudel said during a press conference that the monetary policy has been brought to complement and support the government’s policies, programs and budget for the upcoming fiscal year. “The monetary policy will play a supportive role in achieving the objectives set by the government,” he said.
The Rastra Bank has introduced a provision to remove unlimited liability from personal guarantees used as loan security in priority sectors. Spokesperson Poudel said the arrangement will provide some relief to borrowers.
The monetary policy has also proposed measures to reduce difficulties caused by cheque dishonor and improve access to banking services. Spokesperson Poudel said that alternative legal arrangements without blacklisting due to cheque dishonor will provide some relief to entrepreneurs and businesses.
The Rastra Bank has adopted a policy to encourage companies seeking to revive troubled industries through new plans, ideas and visions.
National Bank Executive Director Dr. Satyendra Timilsana said the policy aims to encourage those who bring action plans to restart troubled industries with a new approach. “This policy has been introduced to manage non-performing loans of troubled industries, revive such loans and bring institutions back to their previous state,” he said.
The central bank has also introduced special policy arrangements to determine share collateral loan limits based on institutional strength and facilitate loan-to-value ratios for large electric vehicles used in public transportation.
The monetary policy includes provisions to reduce financial costs of banks and financial institutions through digitalization and transfer benefits to customers, thereby improving service quality. It has also adopted a policy to gradually implement regulatory arrangements encouraging banks, financial institutions and non-bank financial institutions to expand services in targeted areas after completing the ongoing study on classification of financial institutions.
Spokesperson Poudel said the monetary policy for the upcoming fiscal year has been presented based on three separate documents. “Previously, all issues were included in a single monetary policy document, but from the upcoming fiscal year, three separate documents have been presented,” he said.
The central bank has separately presented the monetary policy review for fiscal year 2082/83, the ‘Macroeconomic Report, Analysis and Outlook’, and the Monetary Policy 2082/83.
The central bank has set a policy objective of maintaining inflation at around 5.5 percent, keeping foreign exchange reserves sufficient to cover at least seven months of imports of goods and services, and managing monetary liquidity and foreign exchange to support seven percent economic growth in fiscal year 2083/84.
The monetary policy has introduced a policy of conducting open market operations to keep the weighted average interbank rate stable and maintain it around the policy rate. It has also stated that different maturity instruments will be used for structural liquidity management and regular and emergency liquidity management based on liquidity conditions.
For the upcoming fiscal year, the Rastra Bank has kept policy rates under the interest rate corridor, the standing deposit facility rate and the bank rate unchanged. Existing provisions related to the cash reserve ratio, statutory liquidity ratio and standing liquidity facility will also continue.
Nepali banks allowed to invest in foreign bank funds
Through the monetary policy, the central bank has, for the first time, encouraged commercial banks to invest in foreign government bonds to support liquidity management through foreign currency purchases and introduced policy arrangements for ‘sterling intervention’ during foreign currency purchases.
Executive Director Timilsana said arrangements are being made to allow Nepali banks and financial institutions to invest in securities and bond funds of foreign central banks.
The National Bank has also included a provision to study the possibility of conducting ‘peer-to-peer’ transactions based on individual credit scoring systems.
The monetary policy has also mentioned that programs related to the national commitment, 100 agendas of governance reform and the budget statement issued by the Government of Nepal are being gradually implemented through coordination with concerned bodies.