Major Highlights: First Quarterly Review of Monetary Policy for Fiscal Year 2079/80

The fiscal year 2079/80 first quarterly review of monetary policy has been released by Nepal Rastra Bank (NRB). Through this monetary policy, the central bank has implemented a number of changes, particularly in the banking sector where the spread rate of banks and financial institutions has fallen and the CD ratio has been relaxed. Let's look into the major highlights:

• The Central Bank decreased the spread rate by 0.4 percentage points in the first quarter while assessing the monetary policy for the fiscal year 2079/2080.

• The inter-commercial banks' interest rate of 4.4 percent has been held steady at 4 percent. The interest rate differential between finance companies and development banks has also decreased from 5 percent to 4.6 percent. It is anticipated that as a result, both the loan interest rate and the premium rate that banks and other financial institutions charge when determining the loan interest rate will decline. It is also mentioned in the review that regular monitoring of premium arrangements will also be done.

• NRB has prepared to allow microfinance financial institutions to reduce the interest rate of loans according to the cost of funds like commercial banks. From Magh 2079, microfinance financial institutions will have to publish the Aadhaar rate on a monthly basis. Currently, NRB has imposed a limit on microfinance to charge not more than 15 percent interest on loans. 

• The working capital loan guidance under implementation will be addressed based on the suggestions received. In fact, NRB had asked for the necessary input and recommendations for the amendment of the existing capital loan rules a few days prior.

• The mandatory cash ratio has been kept unchanged at 4 percent and the bank rate at 8.5 percent.

• In order to prevent a breakdown in the payment system, liquidity will be maintained. Additionally, by sustaining the flow of reflected credit, the interest rate will not rise right away.

• If the specified loan-deposit ratio is not reached, the fine imposed on banks and financial institutions will be reviewed based on the liquidity risk.

• The secondary market investments made by banks and other financial institutions in public limited companies that are involved in the agricultural sector's bonds will be permitted to count against the minimum amount of loans that the bank must invest in that industry.

• There is a provision that the CD ratio of banks should be maintained at 90 percent.

A complete PDF file of Monetary Policy 2079/80 for your reference: