NRB to raise CRR rates by 0.5 percent; BASEL III provisions in the offing

ShareSansar, March 2:

Nepal Rastra Bank has decided to raise the CRR rate by 0.5 percent to rein in excess liquidity in the capital market, especially the banking sector—thereby control inflation.

According to highly placed central bank sources, the announcement to this effect will be made through the mid-term review meeting of the current fiscal policy on Monday.

The decision will help soak some of the liquidity in the system as the BFIs will be able to keep aside more money on its reserve now.

So far, the CRR ratios for the commercial banks, development banks and finance companies stand at 5, 4.5 and 4 percents respectively.

By raising the CRR rate by 0.5 percent, the central bank aims to mop up around Rs 3 arba from the system, the sources further informed.

The last time the central bank had raised the CRR rates was through the fiscal policy of the last fiscal year 2069/70.

The CRR rates were raised by 1 percent for the BFIs in the last fiscal as compared to the previous fiscal.

But the rates were again slashed by 1 percent through the monetary policy announced for the current fiscal year.

NRB, however, may not change the other targets as the monetary policy has addressed them adequately, according to the sources.

Meanwhile, the central bank sources also informed that the mid-term review may also make some important provisions to ensure full implementation of BASEL III by 2018.

Though the BFIs have to soar up their paid-up capital to meet the BASEL III targets, the central bank is not in favor to promote raising the money from the public, the highly placed sources informed.

As the budget for the current fiscal year has given priority to loan expansion and that the new government is not in a mood to introduce mid-term budget, the mid-term review of the monetary policy is unlikely to effect changes to the lending policies.

However, the central bank is likely to take a flexible stance when it comes to lending in the microfinance sector and re-loan, sources added.