Nepal Rastra Bank (NRB) has unveiled the mid-term review of the monetary policy for the current fiscal year. The review was approved during the central bank’s board meeting, which began today at 5 PM Falgun 13. The policy aims to balance economic growth and inflation control while introducing several regulatory changes to support financial stability.
Key Highlights of the Mid-Term Review
- Policy rates remain unchanged to support economic growth.
- Microfinance institutions must link lending rates to the base rate from Jestha 2082.
- LTV ratio for personal and electric vehicles set at 60%.
- Loan loss provision for good loans reduced to 1%, boosting bank profits.
- NDF contract limit increased to 20% of primary capital for better forex risk management.
Policy Rates Remain Unchanged
Despite rising inflationary pressures, NRB has decided to maintain its flexible monetary policy to foster economic growth. The key rates remain unchanged as follows:
- Policy Rate: 5.0%
- Deposit Collection Rate: 3.0%
- Bank Rate: 6.5%
Additionally, the mandatory cash reserve ratio (CRR) and statutory liquidity ratio (SLR) have been kept unchanged, ensuring stability in the banking sector.
New Regulations for Microfinance Institutions
Starting from Jestha 2082, microfinance institutions (MFIs) will be required to link their lending rates to the base rate. This move aims to enhance transparency and fairness in interest rate structures for borrowers.
Loan-to-Value (LTV) Ratio for Vehicles
Personal and Electric Vehicles
The loan-to-value (LTV) ratio for personal and electric vehicles has been set at 60%. This regulation ensures prudent lending practices while encouraging the adoption of electric vehicles.
Reduction in Loan Loss Provision
Easing Reserve Requirements
NRB has reduced the loan loss provision for good loans from 1.1% to 1%. This adjustment is expected to ease the reserve requirements for financial institutions, potentially increasing the overall profit of banks by Rs. 5 Arba, according to bankers.
Increased Flexibility in Foreign Exchange Risk Management
To provide greater flexibility in managing foreign exchange risks, NRB has raised the limit on non-deliverable forward (NDF) contracts from 15% to 20% of primary capital. This change will help financial institutions better hedge against currency fluctuations.
Nepal Rastra Bank Releases Mid-Term Review of Monetary Policy FY 2081/82
Conclusion
The mid-term review of Nepal Rastra Bank’s monetary policy reflects a balanced approach to fostering economic growth while addressing inflationary pressures. The regulatory changes aim to strengthen the financial sector, promote transparency, and provide greater flexibility to financial institutions. These measures are expected to contribute to the overall stability and growth of Nepal’s economy.