Monetary Policy of Nepal 2075-76
Major Highlights of Monetary Policy of Nepal 2075-76 signifies the characteristics of the monetary policy. Monetary Policy is the policy formulated by the central bank or the monetary authority to stimulate growth, maintain price stability, increase employment, investment, and output through the systematic control of money supply. Monetary policy is one of the major policies of the country that governs the money supply and thereon the interest rate in an economy that influences employment, output, and prices.
Wikipedia defines,
Monetary policy is the process by which the monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the money supply, often targeting inflation rate or interest rate to ensure price stability and general trust in the currency.
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Source: www.balance.com[/caption]Major objectives of monetary policy of Nepal 2075-76
- Inflation at 6.5%.
- Economic growth rate 8%
- Foreign reserve to be maintained to support the import for 8 months.
Major instruments of monetary policy of Nepal 2075-76
- Cash Reserve Ratio
- 4% for Class A, Class B, and Class C.
- Statutory Liquidity Ratio
- 10% for Class A, 8% for Class B, and 7% for Class C
- Bank rate
- 6.5%.
28 Major Highlights of Monetary Policy of Nepal 2075-6
- Inflation target at 6.5%.
- The maximum broad money supply stands at 18%.
- Weighted interest rate spread is 4.5%.
- The domestic credit growth is expected at 22.5% and the private sector credit growth is expected at 20%.
- Bank and financial institutions will be allowed to mobilize external borrowing including in Indian currency up to 25 of their core capital.
- Cash Reserve Ratio (CRR) to 4% for commercial, development, and finance companies.
- The Statutory Liquidity Ratio (SLR) is 10%, 8%, and 7%.
- Overdraft loan ceiling reduced from 7. million to 5 million.
- Commercial banks to extend at least 10 percent of their total credit to agriculture and 15 % to energy and tourism sector.
- Deprived sector lending 5% of total credit.
- A full audit of the big branches of the commercial banks mandatory.
- The credit rating of borrower those utilize the credit of Rd. 500 million and above is mandatory.
- Margin lending only 25% of stock value.
- Margin call if the stock prices plunge over 20% of collateral value.
- Upper Floor of interest rate corridor minimized to 6.5% and the lower floor is expanded to 3.5%.
- Ban on the stitching of notes.
- Deposit up to Rs. 3 lakhs is insured.
- Issue collateral value guidance.
- Microfinance Institutions can only add 6% point on their cost of funds while fixing lending rates.
- The maximum limit of single institution deposit is reduced to 15% of total deposit liability.
- Bank and financial institutions can open branches outside metropolitan and sub-metropolitan without pre-approval from the bank.
- Students at high school and university level are encouraged to open a bank account.
- Development bank and finance company shall prepare a financial statement as per NFRS.
- Mandatory audit of IT system.
- Import exceeding $40000 must be done through L/C.
- Import from India exceeding INR 50 million shall be done through L/C.
- USD 1000 will be provided to travelers.
- Nepali commercial banks will be allowed to act as an agent for managing trilateral agreement, manage escrow account, and provide custodian services to foreign investors.
Conclusion
The monetary policy of Nepal 2075/76 is the expansionary monetary policy. Nepal Rastra Bank has decreased CRR to 4% and the Bank rate to 6.5%. Such an attempt by the NRB will increase the liquidity in an economy and consequently decrease the interest rates. There exists a trade-off between economic growth and price stability. The monetary policy of Nepal 2075-76 has focused on achieving higher economic growth, so the economy must put up with rising prices or inflationary pressures.
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