3rd Quarter Review of Monetary Policy

NRB keeps key rates unchanged in monetary policy review

Himal Press 17 May 2024
NRB keeps key rates unchanged in monetary policy review

KATHMANDU: The Nepal Rastra Bank (NRB), the central bank of Nepal, released its third-quarter review of the monetary policy for the fiscal year 2023/24 on Friday, maintaining a steady course without major changes.

Based on the current internal and external economic conditions and outlook, the NRB has decided to keep the existing policy rate at 5.5%, the deposit collection rate at 3% under the interest rate corridor, and the bank rate at 7% unchanged. The provisions regarding the required cash reserve ratio (CRR) and statutory liquidity ratio (SLR) will also remain the same. The NRB, however, has said that the provision of the Standing Deposit Facility (SDF) will be reviewed as necessary to ensure the effectiveness of the interest rate corridor, which is crucial for maintaining liquidity management within the banking system.

Likewise, the central bank has said that it would provide needful facilitations to use additional instruments to strengthen the capital base of banks and financial institutions.

To create demand for credit, the central bank has decided to reduce the risk weight on hire purchase loans for vehicles from 125% to 100%. Similarly, it has decided to lower the existing loan loss provision requirement for performing loans from 1.25% to 1.20%.

Similarly, the NRB has relaxed the debt service to gross income ratio requirement for home loans from existing 50% to 70%. This ratio determines how much of a homebuyer’s income goes toward housing costs. The increment in debt service to gross income ratio means salaried workers can apply for loans with EMI up to 70% of their income.

The central bank has also said that it would review existing provisions regarding the import, sales and distribution of silver.

As of mid-March, the government’s total recurrent and capital expenditures are down by 8.9% and 9.2%, respectively, compared to the same period of the previous fiscal year. Despite this reduction in spending, revenue mobilization has seen a growth of 9.4%. However, given the trend of increased public spending in the fourth quarter, it is anticipated that public expenditures will rise by the end of the current fiscal year, the central bank said in its monetary policy review.

According to the NRB, the banking system has experienced an easy liquidity situation, leading to significant decreases in both short-term and long-term interest rates. The weighted average rate of the 91-day Treasury bill fell from 9.74 percent in mid-Mary last year to 3% in mid-May this year. Similarly, the interbank rate among banks and financial institutions dropped from 7.01% to 3.10% over the same period. The average base rate of commercial banks decreased from 10.48% to 8.51%. Furthermore, the weighted average interest rate on deposits decreased from 8.26% to 6.53%, and on loans from 12.84% to 10.55%.




Published On: 17 May 2024


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