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

The fiscal year 2079/80 second 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 working capital loans, cash margin, and the interest rate of banks and financial institutions. Let's look into the major highlights:

• The objective is to maintain foreign exchange reserves that can pay for imports of goods and services for at least 7 months during the fiscal year 2079–2080; however, as of the end of Poush 2079, there were foreign exchange reserves that could pay for imports of goods and services for 9.1 months.

• The goal was to keep annual average consumer inflation below the threshold of 7% for the fiscal year 2079–2080, however, in the first six months, it was 8.02%.

• The detailed money supply was expected to rise by 12 percent annually in the fiscal year 2079/2080, although on an annual point basis, this growth rate was 7.7 percent by the end of Poush 2079.

• The financial system's liquidity position has generally improved in the first half of the current fiscal year compared to the first six months of the previous year. Through open market transactions, Rs. 401.94 Arba had been transferred by the second quarter of the fiscal year 2079/80.

• Banks and financial institutions provided a daily liquidity facility worth Rs. 35.48 Arba and an overnight liquidity facility worth Rs. 12.81 Arba, both of which were used in the month of Poush in the current fiscal year.

• By the second quarter of the current fiscal year, liquidity amounting to Rs. 358.90 Arba had flowed through the acquisition of foreign currency on the foreign exchange market as a result of the improvement in the flow of remittances and the decline in imports.

• The operating aim of monetary policy, the average interbank rate between banks and financial institutions, was 4.77 percent in Poush 2078 and maintained at 7.53 percent in Poush 2079.

• The weighted average interest rate of 91- day treasury bills remained at 10.89 percent.

• The average base rate of commercial banks reached 10.91 percent in Poush 2079.

• In Poush 2079, the weighted average real interest rate of deposits was 1.25 percent and the weighted average real interest rate of loans was 5.53 percent.

• Commercial banks are required to maintain an average interest rate gap of 4.2 percent from Chaitra 2079 and 4.0 percent from Ashad 2080. In the same way, an arrangement has been implemented that the development bank and finance companies must maintain such interest rate at 4.8 percent from Chaitra 2079 and 4.6 percent from Ashad 2080.

• The guidance regarding working capital loans has been revised based on the suggestions received from the stakeholders.

• In the bonds issued by public limited companies related to the agricultural sector, the investment made by banks and financial institutions can be counted within the specified limit, so that they have to invest in the agricultural sector.

• In view of the pressure on the exchange rate, there is a provision to maintain a mandatory cash margin of 50% to 100% when opening a letter of credit for import, but this provision has been abolished in view of the improvement in foreign exchange reserves.

• Nepal Rastra Bank Remittance Regulation, 2079 has been issued to further organize the work related to remittance business, including the provision of license for remittance related business, the work and duties of organizations licensed to do business, the provision related to merger or acquisition of licensed remittance companies.

• By the end of Jestha 2080, it will be arranged that penal interest will not be charged if the loan is paid within one month of exceeding the principal / interest liability of the borrower.

• An arrangement will be made to allow loans of up to Rs. 2 Crores in the active category at the end of Poush 2079 to be restructured and rescheduled by the end of Ashad 2080 after analyzing the cash flow and income of the industries and businesses. This will help small and medium-sized industries and businesses operate more easily.

• As soon as loans that were categorized as non-performing under the loan classification and loss system are regularized, they will be classified in the good and micro-monitoring categories, etc., in accordance with international best practices, in order to further strengthen the credit quality of banks and financial institutions.

• The monitoring of the average interest rate gap between loans and deposits and the premium charged from borrowers to be maintained by banks and financial institutions will be made more effective.

• Furthermore, as of the second quarter's monetary policy, no changes have been made to any regulations governing the stock market in any form.