Monetary Policy by Nepal Rastra Bank, 2080/81 (2023/24)

1. Monetary policy
2080/81
Krishna Niraula
CA, Banker, Trainer,
Motivational Speaker

2. What is monetary policy?
▸ Policy formulated by the central bank of the country to support
▹ expansion of economic activities
▹ while maintaining macroeconomic stability (employment,
inflation, economic growth, BOP stability, etc.)
▸ Aims to support economic growth and job creation through
▹ the management of money supply, credit and interest rates.
2

3. Key tools of monetary policy
Interest Rate Adjustment
Changing Reserve Requirements
Open Market Operations
First
Monetary
policy in
2059/60

4. Types of Monetary policy
▸ Expansionary Monetary Policy
▹ aims to increase the money supply,
▹ lowers unemployment & stimulates business activities and consumer
spending.
▹ Overall aim to fuel economic growth, but can lead to higher inflation.
▸ Contractionary Monetary Policy
▹ aims to decrease the money supply
▹ can be achieved by raising interest rates, selling government
bonds, and increasing the reserve requirements for banks.
▹ utilized when the government wants to control inflation levels.
4

5. Monetary policy 2080/81: Framework
▸ Monetary Policy Stance (कार्यदिशा)
▸ Flexible monetary policy carefully adopted for economy mobility with price and external
sector stability.
▸ Priority to increase the internal production capacity by channeling the financial
resources to the productive sector.
▸ Regulatory policies for loans for financial stability
▸ effectively monitor, regulate and supervise large exposure loans,
▸ reduce loan concentration,
▸ prioritize SME productive loans and
▸ increase the quality and accessibility of loans.
5

6. Monetary policy Structure and target
▸Fixed exchange rate of NPR and INR continued as monetary policy constraint (अंकुश)
▸Weighted Average Interbank Rate continued as operating target (अन्तरबैंक ब्याजदर संचालन लक्ष्य)
▸Active open market operation and Interbank interest rate within the interest rate corridor as per the
status of the operating target.
▸Policy Rate to be determined seeing import capacity of foreign exchange reserves and annual inflation
target.
▸Target to maintain foreign exchange reserves to cover at least 7 months import of goods and services.
▸Monetary management while maintaining monetary expansion to limit the inflation within 6.5%
▸Priority to productive lending so as to reach economic growth target of 6% as per govt. budget target.
▸Broad money supply growth by 12.5% & private sector credit growth by 11.5%.
6

7. ▸ Bank Rate 7.5%, Policy Rate 6.5% and Deposit Collection Rate 4.5%
▸ Secondary market transactions and deposit collection to be opened if
the Wt. Avg. Interbank rate is higher than the bank rate and lower than
the deposit collection rate.
▸ SLF at Bank rate and Overnight Liquidity Facility at Repo rate (same
continued)
▸ Standing Deposit Collection facility (SDF).. स्थायी ननक्षेप संकलन सुनिधा to be
lower limit of IRC.
▸ No change in CRR and SLR
Monetary measures
7

8. provisionsrelated to Regulation & Supervision
▹ Amendment of BOPA, 2064 to strictly regulate non-commercial and disorder activities
▹ AML regulations on the basis of peer review
▹ First Home Residential loan to increase upto Rs. 2 crore
▹ 1% additional interest in remittance saving continued
▹ Working capital loan guidelines to be reviewed.
▹ Stressed Loan Resolution Framework to be issued.
▹ Internal Credit Risk Grading Guidelines to be issued
▹ Full compliance of CAF, 2015 by national B class banks.
▹ Expected Credit Loss Model as per Nepal Accounting Standards
▹ Review of Targeted lending limit
▹ Compulsory PAN loan limit to be reviewed as per Budget target.
▹ Review for lending relaxation to Private Equity Fund/Venture Capital Fund
▹ Credit Scoring, support for Special regulatory body to co-operatives, Centralized KYC with national ID,
Financial Corporation Survey, Priority in Career Planning with Career Development Certificate, review of
risk weight of Loan against collateral of shares, real estate loan and hire purchase loan, etc. 8

9. provisionsrelated to Financial sectors
MFIs
▹ MFIs merger promotion till Asar 2081
Payment System
▹ CBDC task to be progressed
▹ Govt. revenue collection through electronic equipments
▹ Foreign currency receipt through electronic means for IT export services to be made more
effective.
▹ Payment settlement as per Principles for Financial Market Infrastructure (PFMI)
9

10. provisionsrelated to Financial sectors…
Foreign Exchange Management
▹ Amendements in NRB Foreign Investment & Foreign Borrowings Management Byelaws
▹ Special provision to IT Exporting Business: Foreign Contact Office, Payment to Foreign bodies
or remittance to own foreign bank account and procurement of software and installation of
equipments all to be available through commercial banks upto specified % of foreign income.
▹ Review of imports through Draft/TT and DAP/DAA
▹ Update the goods eligible for Back to Back LC as per Nepal Integrated Trade Strategy
▹ Annual dollar exchange for travel revised to 2500 $ (twice a year)
▹ Air Service Providers to be allowed to send service charges in forex through commercial banks
as per regulatory approval and documents
▹ Withdrawal of provision to repay FCY borrowings in NPR
▹ SWAP instruments to be introduced for forex risk management
10

11. Instances of Monetary policy 2080/81 for economic mobility
▹ Relaxations in Risk weights for share loan upto 50 lakhs and also for Hire purchase &
real estate loans
▹ Govt. revenue collection through electronic equipments
▹ Foreign currency relaxations to IT export services
▹ Consumption expenditure in Foreign exchange upto 2500$ in travels
▹ Lending relaxation to Private Equity Fund/Venture Capital Fund (yet to review)
▹ Reduction in interest rates
▹ Foreign Exchange reserve target of 7 months import holding capacity to increase
import and support govt. revenue
▹ Increase in residential home loan to first home buyer to increase govt. revenue, etc.
11

12. Challenges of Monetary policy 2080/81
▹ Relaxation Provisions for economic mobility but cautious monetary policy (wait and
see strategy)
▹ Achieving economic growth target and inflation target of govt. budget seems
difficult
▹ Increase demand of Productive Sector Loan
▹ Increase government revenue through consumption loan relaxation may increase
excess imports and have negative impact on trade deficit and BOP, etc.
12

13. 13
Thanks!
You can find me at:
▸ www.facebook.com/cakrishnaniraula
▸ www.youtube.com/user/Krish472929
▸ www.t.me/cakrishnaniraula