BREAKING: Major Highlights of Monetary Policy 2080-81

The much-awaited monetary policy for the fiscal year 2080/81 has been unveiled today.

The policy was publicly unveiled through the website of the Nepal Rastra Bank (NRB). 

Nepal Rastra Bank's fiscal year 2080/81 monetary policy announcement includes several significant measures to address the prevailing economic conditions:

• Policy rate reduction: The policy rate has been reduced by 50 basis points, bringing it down to 6.5 percent. This step aims to promote borrowing and investments, spurring economic growth.
• Unchanged bank rate: The bank rate remains steady at 7.5 percent. This decision indicates the central bank's commitment to maintaining financial stability and controlling inflation.
• Adjusted deposit collection rate: The deposit collection rate has been lowered from 5.5 percent to 4.5 percent. This move aims to encourage banks to collect more deposits and enhance liquidity in the banking system.
• Operational target set: The weighted average interbank interest rate will be utilized as the operational target. This approach facilitates efficient interbank lending and borrowing, ensuring better monetary control.
• Secondary market transactions and deposit collection: If the weighted average interbank interest rate falls between the bank rate and the deposit collection rate, it will trigger the opening of secondary market transactions and encourage deposit collection initiatives. This measure promotes liquidity management and fosters a conducive financial environment.
• Unchanged liquidity facilities: The Nepal Rastra Bank maintains the permanent liquidity facility at the bank rate and the overnight liquidity facility at the policy rate unchanged. This ensures that banks have access to sufficient liquidity, fostering stability in the financial sector.
• Stability through unchanged ratios: The mandatory cash ratio and statutory liquidity ratio have been retained at their current levels. These ratios ensure that banks maintain a certain percentage of their deposits in the form of cash or liquid assets, contributing to overall financial system stability.
• Enhancing the interest rate corridor: To strengthen the effectiveness of the interest rate corridor, arrangements are being made to establish a permanent deposit collection facility at the lower limit of the interest rate corridor. This measure enhances the central bank's ability to regulate interest rates within a specified range.

Reviewing Risk Weighting Provisions for Share Mortgage and Loans

• In the current financial year's monetary policy, no changes were made to the existing arrangements regarding share securities, maintaining the status quo from the previous policy.
• The previous monetary policy had set a maximum limit of 12 crore rupees for a single customer to obtain margin loans from one or multiple licensed financial institutions, and this limit remains unchanged in the current policy.
• Share investors have been requesting an easing of share mortgage loan provisions, but there were no adjustments made to address their demands in this year's monetary policy.
• The existing risk weightage for the disbursement of share/securities loans, real estate loans, and higher purchase loans is to be reviewed.
• Currently, loans up to 25 lakhs flowing into share securities carry a risk weight of 100 percent, while loans above that have a risk weight of 150 percent. The monetary policy declares that this system will be amended, making it more convenient for banks to provide loans on share securities within the 12 crore limit. 
• Notably, this year's monetary policy does not mention the provision of margin loans on shares through share brokers, indicating a departure from the previous policy's announcement.

Real Estate Policy Unchanged:

• Nepal Rastra Bank (NRB) maintains the previous policy in the real estate business for the current financial year 2080/81.
• The policy allows a loan on real estate mortgage based on a maximum of 30 percent of the fair market value in the Kathmandu Valley and a maximum of 40 percent in other locations.
• Despite demands to increase the credit limit to 70 percent on real estate mortgages, NRB has not made any concessions, considering real estate as unproductive.

Real Estate Loans Predominant:

• Banks and financial institutions have been providing loans mostly on the mortgage of real estate, constituting 68 percent of the total loans disbursed by these institutions until the end of Jestha in the financial year 2079/80.
• Data from NRB reveals that a total of Rs. 48.58 Kharba in loans were disbursed during that period, with houses and land used as collateral for loans worth Rs. 33.3 Kharba.

First Home Buyer Loan Limit Increase:

• Nepal Rastra Bank has made a significant concession to the general public buying their first home.
• The loan limit for first home buyers has been increased from Rs. 1.5 crore to Rs. 2 crore in the current monetary policy.
• This move aims to support and encourage first-time homebuyers, making it easier for them to enter the real estate market and own a residential property.

NRB's Role in Regulating Real Estate Sector:

• Nepal Rastra Bank (NRB) plays a crucial role in regulating the real estate sector to ensure financial stability.
• By maintaining the loan-to-value ratio, NRB aims to strike a balance between promoting responsible lending and managing risks in the real estate market.

Encouraging Mergers, Acquisitions, and Study Report Implementation

• Nepal Rastra Bank (NRB) aims to reduce the number of microfinance institutions.
• Encouraging mergers and acquisitions in the microfinance sector.
• Integration to be completed by the end of Ashad 2081.
• Benefits include improved efficiency and enhanced service offerings.
• NRB will implement study report recommendations to address sector challenges.
• Gradual implementation of findings to improve overall performance.
  Emphasis on financial stability, efficiency, and growth in the microfinance landscape.

Enhanced Monetary Provisions for Overseas Travel

• Nepal Rastra Bank announces new monetary policy for the current financial year.
  Provision for Nepali citizens traveling abroad to receive up to USD 2,500 as a passport facility, an increase from the previous limit of USD 1,500.
• The enhanced provision allows individuals to access the facility twice a year for travel to countries other than India.
• For air service providers abroad, licensed "A" class commercial banks can facilitate payments of up to one hundred thousand US dollars or other convertible foreign currency based on regulatory approval and prescribed documentation.

Controlling Inflation and Managing Loan Growth

• Nepal Rastra Bank (NRB) aims to limit inflation to 6.5 percent in the current financial year.
• Monetary management strategies will be employed to maintain stable economic conditions and prevent price pressure from monetary expansion.
• Cautious monetary mobilization will be emphasized to mitigate potential inflationary risks.
• To ensure financial stability, NRB sets a growth rate limit of 11.5 percent for loans to the private sector.
• This measure aims to prevent excessive credit expansion and manage potential economic imbalances.
• NRB's approach seeks to strike a balance between supporting economic activities and managing risks.

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