The Nepal Rastra Bank, in its second quarter review of monetary policy, has opted to maintain the status quo, refraining from major policy changes. While some adjustments were made in the first-quarter review, certain policies were deferred for implementation during the half-yearly review. Notably, interest rates have started to decline, contributing to increased liquidity in the system.
Despite general expectations of potential reductions in the risk weightage for loans in the stock market and real estate sectors, the Central Bank has not taken any such steps at this time. The belief is that the economy will gradually recover with the initiation of falling interest rates. Key rates such as the policy rate, bank rate, mandatory cash ratio, and statutory liquidity ratio remain unchanged, indicating a cautious approach.
The Central Bank has not introduced significant measures to manage the growing liquidity, despite earlier speculations. However, a noteworthy development is the allowance for institutional fixed deposit interest rates to be set up to 1 percentage point lower than those for individual fixed deposits.
Additionally, the Central Bank has introduced a provision where loans up to Rs. 2 crore in small, domestic, and medium enterprises can be included in the regulatory retail portfolio. This move is anticipated to provide relief to banks facing capital fund pressure and reduce the risk weightage on loans to small and medium enterprises.
Starting Falgun 1st, the Nepal Rastra Bank will implement a Standing Deposit Facility to make the interest rate corridor more effective. Previously, in response to heightened liquidity in banks and financial institutions, the Central Bank had been withdrawing funds from the market through deposit collection instruments. With the forthcoming implementation of the Standing Deposit Facility, banks will now have the option to deposit funds in the Central Bank at the deposit collection rate.
In conclusion, the Central Bank's stance is centered on the belief that the ongoing decrease in interest rates and the easing liquidity will stimulate credit flow, contributing to a dynamic overall economy. With a preference for maintaining existing policies for a few more months, it appears that the Central Bank intends to monitor the situation closely and may take necessary steps through the monetary policy of the new financial year. Government spending is anticipated to play a crucial role in shaping the future trajectory of the economy.