Mid Term Review of Monetary Policy 2019/20

Nepal Rastra Bank (NRB) has published the mid-term review of the monetary policy. The Mid Term Review assesses the first 6 months of the Fiscal Year 2076/77. The main takeaway points from the review are as follows:

  • In the review period, Paddy production figure showed 55,51,000 metric ton which is 1% less than last FY. While, Tourist Arrival in between August 2019 to January 2020) was 632000 which was 661000 same time in last year.
  • Average Consumer Price inflation target was 6.0% which is 6.4% in the review period.
  • Nepal Bankers Association had urged Nepal Rastra Bank to reduce the spread rate from 4.5 percent to 4.4 percent. Statutory Liquidity Ratio (SLR) has been kept unchanged at 10 percent for commercial banks, 8 percent for development banks and 7 percent for finance companies
  • Export increased by 26.1% as Rs.57.28 Billion and Import Decreased by 4.0 % as Rs.694.69 Billion and Trade Deficit decreased by 6.1% in the review period as Rs. 637.41 Billion
  • The Federal Government was only able to spend 27.6% of Total Expenditure of Fiscal budget (422.55 Billion), Current Expenditure 309.61 Billion and Capital Expenditure 62.77 Billion. While, the revenue collection is 456.18 Billion and it is very low.
  • Given this, the limit for the growth of broad money (M2) has been set at 18 percent, domestic credit 24% and private sector credit growth rate at 21%. While the 6 month review showed 14.5%, 14.1% and 14.9% respectively.
  • SLF reduced to 6%, Repo 4.5 % and Deposit Collection Rate as the lower bound to 3 %. CRR 4% and Bank Rate 6%.
  • Commercial banks will be required to issue debentures of at least 25 percent of their paid-up capital
  • In line with the budget of the GoN, coordination will be made to refund 10 percent of the value added tax (VAT) stated on the invoice directly to the payer’s bank account if the payment is made through card or electronic mean
  • BFIs should allot at least 1% out of its net profit for CSR Provision. The existing provision for the BFIs to spend at least 10 % of corporate social responsibility (CSR) fund in each province will be continued. Use of such fund will be made more systematic and transparent.
  • For agriculture, enterprise and business promotion loan up to Rs. 1.5 million, BFIs will not be allowed to charge interest exceeding 2 percentage points above the base rate and take any service fee or loan prepayment charges from the borrowers. Also, each branch of the BFIs will be required to approve such loan within seven days. In case the application is rejected, the applicant should be informed about the rejection with clear reasons.
  • Similarly, the requirement for tax clearance certificate for the first house loan, loans in agriculture, tourism and SMEs from Rs 50 lakh to Rs 2 crore has been cancelled.

For Seven Month Review

In seven months of 2019/20, merchandise exports increased 22.4 percent to Rs.64.97 billion. Export to India increased by 38% while china Decreased by 12.7%. Merchandise imports decreased 3.6 percent to Rs.803.60 billion from china and India as well. Trade Deficit = Rs. 738.63 Billions

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