Highlights of Monetary Policy FY 2077/78

Maha Prasad Adhikari, Governor of Nepal Rastra Bank (NRB) presented the monetary policy for the fiscal year July 17, 2020. The policy targeted an annual economic growth rate of 7 % keeping the consumer price inflation rate no higher than 7 %. The monetary policy aims to address the economic effects of COVID-19 and provide relief to various sectors affected by the pandemic.

The monetary policy has said that in view of the economic impact caused by the COVID-19 pandemic, liquidity will be eased and credit balance will be shifted.

The major Highlights are as follows:

  • Economic Growth rate : 7 %
  • Consumer inflation : no higher than 7%
  • Repo Rate reduced 3% (3.5% last year)
  • Long-term Repo service to be made available to improve much-needed liquidity for financial rehabilitation.
  • Mandatory Cash ratio 3% to be maintained by BFIs
  • Statutory Liquidity Ratio : 10-8-7%
    • Commercial Banks : 10%
    • Development Banks: 8%
    • Finance Companies: 7%
  • The lender of last resort rate : 5%.
  • Commercial banks to issue
    • at least 15% of their loans in the agriculture sector by 2080 Ashadh end.
    • 10% to the energy sector of total loans by 2081 Ashadh end.
  • Commercial Banks experienced in the energy sector will be allowed to issue Energy Bonds.
  • Commercial Banks can issue energy bond refinancing loan facility for SMEs at 2%
  • Credit to core capital plus deposit  (CCD) Ratio has been increased from 80% to 85%.
    • It means banks can issue more loans and advances against deposits as 5% lesser is required to be set aside as a reserve to maintain liquidity.
  • Agriculture Development Bank will be established as a “Lead Bank” in the agriculture sector. It can also issue Agriculture Bonds to ensure long-term availability of resources.
  • Inter-bank transactions of Agriculture Credit Swaps will be further simplified.
  • The distribution of cash dividend for BFIs with net profit less than 5% will be forbidden.
  • In case of BFIs with a net profit higher than 5% of their paid-up capital will be allowed to distribute 30% of dividends as cash dividend in maximum.
    • However, companies that fulfills the 5% requirement still can’t distribute cash dividend that amounts to a larger sum than their Deposit Weighted Average maintained in Ashadh 2077.
  • No licenses to be issued for new finance companies because the microfinance sector in Nepal is already saturated. Also, any microfinance license under the process of issuance will be discarded.
  • No charging fees on interbank ATM withdrawal
  • Provisions for merger and acquisition of BFIs

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