Nepal’s central bank unveils monetary policy with stringent measures

At a time when Nepal’s economy is under pressure, Nepal Rastra Bank (NRB) unveiled the monetary policy adopting measures to tame inflation and control depleting forex reserves.

NL Today

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Kathmandu: The Nepal Rastra Bank (NRB)– the central bank–on Friday unveiled a tight monetary policy for the Fiscal Year 2022/2023, curbing private sector credit growth in a bid to check rising inflation and depleting foreign currency reserves.

Unveiling the monetary policy, governor of Nepal Rastra Bank Maha Prasad Adhikari said that the central bank has decided to set private sector credit growth at 12.6 percent, against the target of 19 percent in the last fiscal year.

“The high credit growth led to increased imports, putting pressure on the balance of payment (BoP) and foreign currency reserves,” said governor Adhikari. “The monetary policy aims at addressing problems in the economy, and to support the government’s economic growth and the inflation target.”

Lately, Nepal’s foreign currency reserve is depleting at a significant rate. The increase in imports contributed to a massive depletion in reserves, raising fears if the import-based economy of Nepal would sustain long. Last month, the central bank released a figure that Nepal’s foreign currency reserve can sustain the imports of goods and services for just 6.7 months.

Although the central bank had restricted the imports of certain goods, it didn’t stop the depletion of foreign currency reserves.

The central bank said it will take measures to maintain foreign currency reserves to finance imports for at least seven months.  

Likewise, the central bank has also tightened the flow of loans to the real estate sector. The monetary policy has reduced the loan-to-value ratio for real-estate lending in the Kathmandu Valley to 30 percent, and to 40 percent outside the Valley.

Earlier, the loan-to-value ratio for real estate lending was 40 percent in the Kathmandu Valley, and 50 percent outside the Valley. 

The central bank that had tightened margin loans through an earlier monetary policy has made a minor change in the provision. According to the Monetary Policy 2021–22, no individual was allowed to borrow more than Rs 40 million from a bank or financial institution by pledging shares as security, and no individual was allowed to obtain loans totaling more than Rs 120 million from various banks and financial institutions in order to purchase shares.

Now, the limit on not allowing borrowing more than Rs 40 million from a bank or financial institution has been removed.

Likewise, governor Adhikari announced that the monetary policy has lifted the suspension of share transactions during mergers and acquisitions of banks and financial institutions.

The central bank has also increased the mandatory Cash Reserve Ratio (CRR) limit from three percent to four percent in the current fiscal year. Similarly, the Statutory Liquidity Ratio (SLR) limit has also increased. As per the provision, commercial banks should maintain a 12 percent SLR, and development banks should maintain a 10 percent SLR by mid-January.