Central Bank Unveils First Quarterly Monetary Policy Reforms: Highlights of Key Changes in Banking Sector

The fiscal year 2080/81 first quarterly review of monetary policy has been released by Nepal Rastra Bank (NRB). In the recent monetary policy review, the central bank has implemented key changes affecting the banking sector. Here are the major highlights:

1. Private sector loans increased by 4.8%, lower than the previous year. Deposit growth was strong at 14.9%. Credit expansion is expected to improve with decreasing interest rates.

2. Banks used Rs. 239.49 Arba in liquidity from the central bank. Interbank transactions rose by 58.67%, indicating an easing liquidity situation.

3. Short-term and long-term interest rates decreased. The weighted average interest rate on 91-day treasury bills fell from 10.14% to 4.94%. The interbank transaction interest rate dropped from 8.51% to 2.26%.

4. The bank rate decreased from 7.5% to 7%, the policy rate from 6.5% to 5.5%, and the deposit collection rate maintained at 3.0%.

5. BFIs' debentures are considered 100% as resources until Poush 2080, then 50% until Ashad 2081.

6. The risk weight of real estate by banks and financial institutions and share mortgage loans of more than Rs.50 lakh reduced to 125%.

7. Monthly installment income ratio for housing loans up to Rs. 50 lakh increased and maintained at 60%.

8. Borrowers in contact with microfinance institutions facing difficulties can restructure loans if applied by Chaitra 2080.

9. Government expenditure increased by 0.9%, revenue mobilization by 5.0%. Total expenditure reached Rs. 280.57 Arba, 16.0% of the allocation.

10. Government mobilized Rs. 106.790 Arba in three months—internal debt Rs. 97.31 Arba and external debt Rs. 9.48 Arba, accounting for 23.6% of the proposed budget for FY 2080/81.

11. In response to the earthquake in Kartik 2080, the loan limit for individuals affected by the earthquake has been raised to NPR 25 lakhs, and a provision has been implemented to not charge more than a 2% premium above the base rate.

On Thursday, Finance Minister Dr. Prakash Sharan Mahat addressed the members of the executive committee, including Governor Mahaprasad Adhikari, urging them to exercise assuagement in review. The central bank conducted a review to assess both monetary and regulatory aspects to navigate the current market trends.

He provided reasoning for this approach, stating the need to address current inflation. The ongoing analysis of various sectors, examination of the impact of existing currency fluctuations, research status, and the growth of interest rates of bank loans in the private sector were also taken into consideration.