The Governor-Maha Prashad Adhikari emphasized that the new policy maintains a careful and flexible strategy to support economic vitality in Nepal. It aims to preserve financial stability, boost credit access for productive sectors, and enhance the quality of loans.
There is a concerted effort to harmonize monetary and regulatory policies, thereby facilitating credit flow while maintaining macroeconomic stability.
Objectives of Monetary Policy:
- Ensuring foreign exchange reserves cover at least 7 months of imports.
- Maintaining the weighted average interbank rate near the policy rate through rule-based open market operations.
- Channeling liquidity and credit to productive sectors to target a 6.0 percent economic growth rate.
Interest Rate Adjustments:
- The bank rate (upper limit of the interest rate corridor) is cut from 7 percent to 6.5 percent.
- The policy rate is decreased from 5.5 percent to 5.0 percent.
- The deposit collection rate (lower limit of the interest rate corridor) stays at 3.0 percent.
Fixed Exchange Rate:
The policy maintains the fixed exchange rate between the Nepali rupee and the Indian rupee.
Inflation Control:
In this policy, measures are implemented to regulate monetary expansion, aiming to sustain inflation at approximately 5.0 percent and avoid excessive price pressures.
Liquidity and Regulatory Provisions:
The provision for a permanent liquidity facility at the bank rate will continue, with more flexible conditions for accessing permanent liquidity. Existing provisions regarding the mandatory cash ratio and statutory liquidity ratio for banks and financial institutions are also maintained.
Reduced Provisioning Requirement for Banks:
The provisioning requirement for performing loans has been decreased from 1.20% to 1.10%, a change anticipated to enhance bank profitability.
Credit Expansion:
The Monetary Policy has raised the credit expansion target to 12.5 percent for the current fiscal year, up from 11.5 percent in the previous year.
Reduced Provisioning Requirement for Banks:
The provisioning requirement for performing loans has been lowered from 1.20% to 1.10%, a change anticipated to enhance bank profitability.
Abolition of Share Collateral Loan Limit for Institutional Investors:
The NRB has removed the Rs. 20 crore cap on share collateral loans for institutional investors. This adjustment is designed to increase investment flexibility and stimulate the stock market, thereby benefiting the overall economy. The Rs. 15 crore limit for individual investors will remain unchanged.
Foreign Exchange Policy Adjustments:
With the rise in foreign currency reserves, the Nepal Rastra Bank has eased its stringent foreign exchange policy. New measures include:
- Increased limits on foreign exchange transactions using passports.
- Raised limits for foreign exchange via drafts and TTs for imports, from $35,000 to $50,000.
- Expanded import limits from $60,000 to $100,000.
- More flexible payment limits for convertible accounts opened in Nepal.
Support for Private Equity and Venture Capital Investments:
The NRB will refrain from blacklisting private equity and venture capital (PEVC) firms even if their portfolio companies are blacklisted. This policy is intended to promote investment and offer greater security to investors, as PEVC inherently involves investing in multiple companies. If a PEVC firm is penalized due to one blacklisted company in its portfolio, it could adversely affect the other companies it invests in.
Support for Cooperative Depositors:
Provisions will be established to allow depositors with blocked funds in cooperatives to recover up to Rs. 5 lakh.
Agricultural and Startup Loans:
Loans will be available based on production of agricultural product, and there will be incentives to invest in startups.
Asset Management Initiatives:
To address non-performing and non-banking assets of financial institutions, a draft of the Asset Management Company Act will be developed to create an asset management company. This policy seeks to promote a stable and vibrant economic environment by balancing regulatory measures with the facilitation of productive financial activities.
Encouraging AI Adoption in Licensed Institutions:
The policy also addresses the promotion of Artificial Intelligence (AI) within licensed entities. The central bank is emphasizing the integration of AI across various facets of banking and financial services.
This policy highlighted that the goals of this monetary policy are to address issues in the capital market and to promote financial stability and growth within the banking sector. The updated policy is crafted to be flexible, aligning closely with government budget initiatives and the 16th development plan.