This document summarizes Nepal's monetary policy objectives and implementation for 2013-2014 as established by the Nepal Rastra Bank (NRB). The key objectives were to support 5.5% economic growth, contain inflation to 8%, and maintain foreign exchange reserves to cover 8 months of imports. The policy focused on price stability, expanding access to financial services, and utilizing credit for productive sectors. Interest rates, reserve requirements, and open market operations were the primary monetary tools used to achieve these objectives and stabilize the economy.

1. Monetary Policy Of Nepal
Prayash Neupane
2013/14

2. Introduction
 Monetary policy refers to the policy undertaken by
the monetary authority or the central bank to control
and regulate the supply of moneys
 It is concern with demand and supply of money, cost
and av
 It is related with monetary systems of a country
 It is the exercise of the central bank
 It became popular in 1960s
 “Monetary policy is the exercise of central bank over
the money supply as an instrument for achieving the
objectives of economy policy.”
-Edward Shapire

3. Objectives of monetary policy
1. Price stability
 Price stability means neither inflation nor deflation.
 Both inflation and deflation are undesirable for economy development.
 In inflationary phase government should implement contractionary
monetary policy and in deflation government must implement expansionary
monetary policy.
2. Full Employment
 Full employment means the absence of involuntary unemployment.
-Keynes
 Huge investment is essential to reduce unemployment.
 The following relation will show how increse in money supply will increase
employment opportunity;
Ms↑→r↓→I↑→E↑

4. 3. Economic Growth
 It implies the process where the real national income of a country
increases over a long period of time
 Capital formation is one of the essential prerequisites of economic
growth and saving is the source of capital formation.
 We can show its relation with money supply as follows;
Ms↑→r↓→I↑→E↑→O↑→Economic growth
4. Stability in Exchange Rate
 The instability of foreign exchange has adverse effect on international
trade
 Instability in exchange rate may also affect the international business and
personal relations.
 For this frequent devaluation of money should be controlled through
monetary policy

5. Role of Monetary policy
1. Expansion of financial institutions
 Primary aim of the monetary policy in a developing country is to
improve the currency and credit system.
 Extension of commercial banks and other financial institutions will
help in increasing credit facilities.
2. Effective Banking
 To meet the development needs, the central bank of an
underdeveloped country control and regulate the functions of bank
through monetary policy.
 Central bank uses monetary instruments like; Bank rate, open market
operations, cash reserve ratio etc.

6. 3. Development of Banking Habits
 Monetary authority should take appropriate measures to increase the
proportion of bank money in the total money supply of the country.
4. Control on Interest Rate
 In developing economy, there is absence of an integrated interest rate
structure
 The monetary policy aims to integrate the interest rate of the economy
 A suitable interest rate should be developed which not only increases
saving and investment in the country but also discourages speculative and
unproductive loans.
5. Debt Management
 It aims at issuing of government bonds.
 The success of debt management requires the existence of a well
developed money and capital market along with a variety of short term
and long term securities.

7. Monetary policy of Nepal in 2013-
2014
 By the Nepal Rastra Bank (NRB) Act, 2002, monetary
policy has been adopting the objectives of;
→ Maintaining price and external sector stability.
→ Financial stability and facilitating high & sustainable economic
growth.
→ Giving top priority for increasing financial access
 The monetary policy for 2013/14 is also directed to;
→ Contain inflation within a desired limit.
→ Maintain external and financial sector stability.
→ Utilize credit in the productive sector and expand financial
access.

8.  This monetary policy has been formulated for 2013/14 on the
basis of the analysis of;
→ Current macroeconomic situation and review of previous year's
monetary policy.
→ Internal and external economic and financial outlook and priorities of
government budget.
→ In addition, suggestions received from Nepal Bankers' Association,
Development Bankers' Association, Nepal Finance Company
Association, Micro Finance Bankers' Association, industrial and
commercial associations and other stakeholders are also incorporated
while formulating this monetary policy.
 NRB focused on International Economic Outlook, Domestic
Economic Situation, Financial Market, Monetary Situation,
Liquidity Management to formulate policy.

9. Progress Matrix of Monetary
Policy of 2012/13
Objectives Implementation Status
 Attainment of 5.5 percent
economic growth.
 Containing inflation rate at
7.5 percent.
 Maintaining foreign
exchange reserve to cover at
least 8 months of goods and
services import.
 CRR to be maintained by
BFIs will be 6 percent for “A”
class, 5.5 percent for “B”
class and 5 percent for “C”
class financial institutions.
 Economic growth is remain
at 3.6 percent.
 Annual average inflation rate
is remain at 9.9 percent.
 Foreign exchange reserve is
to cover 11.6 months goods
import and 9.9 months
goods and services import.
 Implimented.

10. Objectives Implementation Status
 General refinance rate should
be 6.0 percent.
 Open market operations
(OMO) will be used as a major
instrument for monetary
policy.
 Maximum period of repo and
reverse repo auction will be
made of 28 days.
 Maximum maturity period of 7
days for inter-bank
transactions.
 Implemented
 Open market operations
(OMO) used as a major
instrument for monetary
policy. The net liquidity of
Rs. 8.50 billion was mopped
up through outright sale
auctions.
 Implemented
 Implemented
Conted…

11. Features Of Monetary Policy Of
Nepal 2013/14
 Formulated to support the economic growth of 5.5
percent.
Control inflation at 8 percent per annum for price
stability.
 Maintaining foreign exchange reserves sufficient
to cover the imports of goods and services at
least for 8 months.
CRR to be maintained by BFIs will be 5 percent
for “A” class, 4.5 percent for “B” class and 4.0
percent for “C” class financial institutions.
General refinance rate will be 5.0 percent.
 BFIs can charge up to 9.0 percent interest from
clients.
A provision of issuing 'Prepaid Remittance Card'

12. Conted…
 Priority will be given to establish micro finance
institutions in those districts with very limited financial
access and can provide loan up to Rs. 2 million @ 0%
interest rate.
 Statutory Liquidity Ratio (SLR) to be maintained by
BFIs will be 12 percent for commercial will be required
to maintain 12 percent, 9 percent for development, 8
percent for “C” class finance companies, 4 percent for
“D” class financial institutions.
 The maximum period of repo and reverse repo
auction under OMOs will be reduced to 21 days from
existing 28 days.
 In order to make OMO more effective for short-term
liquidity management, online bidding system will be

13. Conted…
 Considering the comfortable liquidity situation in BFIs,
the maximum period of repo and reverse repo auction
under OMOs will be reduced to 21 days from existing
28 days.
 Industrial organizations and business firms or
companies registered in Nepal can purchase
necessary service through L/C up to US dollar
10,000.
 Providing interest free loans for BFIs to open new
branches has been continued. In addition, expansion
of branches outside district headquarters and urban
areas will be encouraged.
 Necessary provisions will be made to strengthen the
internal control system including governance system
to reduce the operational risks of BFIs.

14. Any
Questions????????????????
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