New CRR provision to come into effect this week

KATHMANDU, July 20:

Nepal Rastra Bank (NRB) has said that the new Cash Reserve Ratio (CRR) provision for the commercial banks and development banks would come into effect from this week.

CRR refers to the fraction of the deposit or the cash of the banks and financial institutions (BFIs) that they are required to store as a reserve in the central bank´s vault.

Issuing a circular on Sunday, the central monetary authority instructed BFIs to implement the amended CRR provision of the ´Unified Directives, 2071 for A, B, and C class BFIs´ from this week. Through the Monetary Policy 2014/15 on Friday, NRB raised CRR for commercial banks and development banks to 6 percent and 5 percent, respectively, up from 5 percent and 4.5 percent.

The central bank, however, kept the CRR for the ´C´ class licensed finance companies unchanged at 4 percent.

NRB raised CRR as part of its ´tightened´ monetary policy to avoid any pressure in the inflation rate and negative impact on financial stability from liquidity surplus in the banking system. CRR gives greater control to the central bank over money supply.

The NRB intends to maintain the growth of broad money supply in fiscal year 2014/15 by 16 percent.

Source: Republica