New monetary policy : NRB to address excess liquidity

KATHMANDU, JUL 18 -
 

With banks witnessing excess liquidity for a long time now, Nepal Rastra Bank (NRB) is all set to open additional windows to mop up liquidity from the banking system in the new monetary policy that will be unveiled on Friday.

According to sources, the central bank will allow banks and financial institutions ( BFIs ) to sell their term deposits, or fixed deposits, to the central bank through auction process.

The banking system is currently witnessing excess liquidity of Rs 50 billion, according to the central bank.

The regulator has been conducting reverse repo to mop up liquidity from the market under which it sells treasury bills to BFIs to take away their cash. “As the current measures have failed to fully address the problem, we are opening another window to mop of the excess liquidity from the market,” said an NRB source.

Bankers have been saying the excess liquidity has hit their profits, as returns from their investment in monetary instruments issued by the NRB are low. The central bank’s directive to maintain the spread rate at 5 percent has also affected their profits.

The NRB source said for those good borrower groups who have taken loans under deprived sector lending from BFIs , the limit of the loan will be increased to Rs 200,000 from the current Rs 150,000. This credit is issued against group guarantee, and collateral is not required.

The limit of the loans to micro-enterprises, which are provided against collateral, will be hiked to Rs 500,000 from the current Rs 400,000, the source said.

The central bank is also set to hike the limit of project credit issued to women entrepreneurs to Rs 700,000 from Rs 500,000.

According to the source, the central bank will be more flexible in commercial banks’ foreign exchange transactions. “The monetary policy will ease banks to do small-scale foreign exchange transactions so that people should not come to NRB.”

The country is in a comfortable position in terms of foreign exchange reserves and the central bank has been liberal after the crisis of negative balance of payments ended a few years ago.

As of the 10th month of the last fiscal year, the forex reserves stood at Rs 653 billion, which is sufficient to import merchandise and services for 9.9 months, according to the NRB. The new monetary policy will encourage BFIs to make more investment in small and medium scale enterprises (SMEs). An NRB official said the central bank could provide refinance facility to BFIS to ensure increased lending to SMEs at relatively lower interest rates.

According to NRB sources, chances for policy changes on the real estate sector lending are slim.

With the government seeking to maintain inflation at 8 percent, the source said the policy could be a little tighter. “As economic growth target is 6 percent for this fiscal year, the monetary policy will address the government-focused areas with sector-specific policies.”

Source: The Kathmand Post