NRB Maintains Key Monetary Policy Rates With Emphasis on Expanding Credit Flow to Production Sector

Nepal Rastra Bank (NRB) has kept key monetary policy instruments unchanged while releasing the mid-year review of the monetary policy for the current fiscal year, 2082/83.

The central bank announced that it has kept the existing arrangements related to the interest rate corridor, bank rate, mandatory cash reserve ratio, and statutory liquidity ratio unchanged.

NRB has put forward a policy to expand credit flow to the production-oriented sector. Under this, the scope of the sectoral credit ceiling applicable to agriculture, energy, and micro, domestic, and small enterprises will be expanded to include tourism, information technology, and export-oriented industries based on domestic raw materials. Furthermore, the provision regarding the minimum credit ratio that banks and financial institutions must maintain in each priority sector will be revised.

The directive concerning working capital loans will also be amended. Under the new arrangement, banks and financial institutions will be able to determine the loan tenure based on the analysis of the borrower's cash flow and financial statements. Similarly, the provision requiring the borrower to keep the outstanding balance of the working capital loan below 10 percent for at least seven consecutive days in a year will be amended to require it to be maintained below 30 percent.

To provide relief to enterprises/businesses displaced due to the expansion of the Mahendra Highway and the Mid-Hill Highway, arrangements will be made to allow loans disbursed in such areas to be restructured or refinanced until the end of Ashad 2083, charging a minimum interest rate of 10 percent.

Under foreign exchange risk management, the limit for primary capital for non-deliverable forward transactions conducted by banks and financial institutions has been increased from 25 percent to 30 percent. Additionally, NRB stated that foreign investment facilitation will be provided for infrastructure construction such as data centers, cloud computing, robotics labs, and artificial intelligence, and credit flow through co-financing will be encouraged for such projects.

A strategy has been adopted to gradually reduce transactions made through checks to encourage the electronic payment system. Furthermore, it was mentioned that the effective implementation of the provision that will prevent borrowers unable to repay loans due to circumstantial reasons from being blacklisted, and will remove them from the blacklist for a maximum of six months if they initiate the repayment process with proper justification, will be ensured.

The review also indicated that programs related to the central bank mentioned in the recently approved Second Financial Sector Development Strategy (2082/83–2086/87) will be implemented in phases.