Nepal Rastra Bank Maintains Status Quo in First Quarterly Review of Monetary Policy for FY 2081/82

Nepal Rastra Bank (NRB) has unveiled the first quarterly review of its monetary policy for the fiscal year 2081/82. The review emphasizes continuity in the existing framework, with no new policy amendments introduced. NRB has opted for a cautious and adaptable monetary stance, guided by an evaluation of the current economic conditions, inflationary trends, and foreign exchange reserve levels.

Inflation Management

The monetary policy set a target to keep inflation around 5.0%. During the first quarter, the average consumer inflation was recorded at 4.26%. As of Ashwin 2081, annual point-to-point consumer inflation reached 4.82%, driven by a 7.18% rise in the food and beverage group and a 3.49% increase in the non-food and services group.

Foreign Exchange Reserves

NRB’s policy goal to maintain foreign exchange reserves sufficient to cover at least seven months of goods and services imports has been surpassed. As of Ashwin 2081, reserves were adequate to cover 14.6 months of such imports.

Interest Rate Corridor

The review implemented the monetary policy’s provisions to reduce the upper limit of the interest rate corridor’s bank rate from 7.0% to 6.5%, and the policy rate from 5.5% to 5.0%. The weighted average interbank rate of banks and financial institutions (BFIs) during the first quarter stood at 3.00%.

Monetary Growth and Credit Projections

The policy anticipated a 12.0% growth in broad money supply and a 12.5% growth in private sector credit during FY 2081/82. As of Ashwin 2081, broad money supply had grown by 13.3%, exceeding the projection, while credit flow to the private sector increased by 6.2% on an annual point-to-point basis.

Key Financial Sector Indicators

Broad Money Supply: Increased by 13.3% as of Ashwin 2081 compared to 13.9% in the same period last year.

Private Sector Credit: Grew by 6.0% as of Ashwin 2081, compared to 4.8% in the corresponding period of the previous year.

Deposits in BFIs: Increased by 12.8% on an annual point-to-point basis as of Ashwin 2081, compared to 14.9% last year.

Non-Performing Loans (NPLs)

The NPL ratio of BFIs rose from 3.66% in Ashwin 2080 to 4.42% in Ashwin 2081. Breakdown by institution type:

• Commercial Banks: 4.28%
• Development Banks: 4.37%
• Finance Companies: 10.84%

Policy Provisions

The following monetary policy rates remain unchanged:

Policy Rate: 5.0%

Deposit Collection Rate (lower bound of the interest rate corridor): 3.0%

Bank Rate (upper bound of the interest rate corridor): 6.5%

The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) have also been maintained at existing levels.