NRB Unveiling Monetary Policy Today; The Policy Will Take Measures To Prevent Debt Growth & a Countercyclical Buffer Will Be Implemented

The Nepal Rastra Bank would implement a strict monetary policy by regulating the loans made through the banking industry. The necessity of limiting loan expansion was discussed during the Central Bank’s Board of Directors meeting.

On Friday around 4 P.M, Governor Maha Prasad Adhikari will announce the monetary policy. He's going to claim that the external sector, prices, and financial stability are his main priorities rather than the budget's stated goal of high economic growth through monetary policy.

Last month, International Monetary Fund (IMF) official highlighted that Nepal should engage in monetary tightening, including interest rate hikes, to boost its depleting foreign exchange reserves instead of resorting to importing restrictions that could drive up prices and impede economic progress.

Robert Gregory, the leader of an IMF team that had conversations with government officials for a week, said in a statement that the government must handle inflationary pressures and expand external imbalances while preserving the economic recovery.

Talking about the governor, this will be Adhikaris’ third monetary policy. In the midst of the Covid lockdown, he announced the first monetary policy. He then offered more amenities than were allowed by the budget. The study of the breakdown of external stability is biased as a result of that facility.

In the second monetary policy, he made some course corrections. With that correction, not only did the liquidity disappear from the market, but the interest rate also went up and the availability of credit also decreased.

The governor's representative has already stated that the new monetary policy will be strict. The need for a strict monetary policy has also been acknowledged by the business sector.

Accordingly, the governor officer will raise the policy interest rates this time and employ certain regulatory instruments to halt the growth of debt.

The required CRR might be increased from the existing 3 percent under the new policy. Additionally, there will be raised in the Standing liquidity facility's percentage from the existing 7 percent.

The countercyclical buffer will again be implemented. The provision of a countercyclical buffer set by Capital Adequacy Framework, 2015 is suspended by NRB through its directive till the fiscal year 2078/79.

As a result, banks that are now maintaining a capital adequacy ratio of 11 percent will now need to maintain one of up to 13 percent. This will significantly limit the loans that banks can make.