Major features of monetary policy 2021/22

·        The monetary policy will facilitate the achievement of the growth target of government of Nepal of around 8.5 percent by channeling resource towards employment promotion and entrepreneurial development.

·        Priority has been given to financial inclusion and financial literacy and the use of technology to ensure easy access of all citizens to financial services.

·        Monetary policy has focused on maintaining monetary aggregates at the desired level which may exert from high expenditure from all government body, higher petroleum prices.

·        monetary management has consider the probable  impact of trade deficit  on external sector stability

·        Monetary policy will focus on interest rate stability through effective liquidity management.

·        An increase in public and private investment is likely to boost up aggregate demand. Monetary policy will focus on maintaining monetary aggregates at the desired level so as to avert the inflationary pressure originating from the demand side.

Instruments and operating targets

•        Open market operations (OMOs) will be conducted by monitoring the excess liquidity of the BFIs and using interbank rate of the BFIs as the operating target of the policy

•        Cash Reserve Ratio (CRR) for commercial bank, development bank and finance company will be maintained at 4% for Commercial Bank, development bank and finance.

•        Monetary Policy has targeted to limit inflation rate within 6%.

•        Statutory Liquidity Ratio (SLR) for commercial bank, development bank and finance company should be maintained at 10%, 8% and 7% respectively.

•         Maintain foreign exchange reserves sufficient to cover the prospective imports of goods and services for at least 7 months in 2019/20.

•        Interest rate corridor (IRC), introduced to minimize the volatility of short term interest rate, will be made further effective

•        The bank rate, applied for the purpose of the lender of the last resort (LOLR) facility, will be reduced to 6 percent from 6.5 percent.

•        The special refinance rate has been kept unchanged at 1 percent, while the general refinance rate will be reduced to 3 percent from the existing rate of 4 percent.

Credit management

•        Domestic credit and private sector credit growth rates are 24 percent and 21 percent respectively

•        The existing policy provision for the commercial banks to extend at least 10 percent of their total credit in agriculture sector and at least 15 percent in energy and tourism sector has been kept unchanged.

•        The minimum investment limit for selection of projects by Infrastructure Development Bank will be set at Rs.300 million.

•        The policy provision requiring the BFIs to extend at least 5 percent of their total credit to the deprived sector has been kept unchanged.

•        In line with the provision made in the Financial Sector Development Strategy (FSDS) to bring the spread between the average lending and deposit rates below 4.4 percent by 2020/21, a provision will be made to bring down such spread to 4.4 percent by mid-July 2020.

•        Necessary coordination will be made to sell foreign employment bond and citizen saving bond throughout the year in order to mobilize remittance income in national priority sectors and encourage the use of formal channels for remittance inflow.

Monetary Management and other policies

•        Growth of broad money (M2) set at 18 percent. 

•        Commercial banks required issuing debentures of at least 25 percent of their paid-up capital by mid-July 2020. 

•        No need to take approval from NRB to open branchless banking centers in those wards where there is no bank branch. 

•        Each commercial bank has to open Regional Head Office in all provinces.

•        Merger and acquisition is highly encouraged to stop unhealthy competition between commercial banks and to further strengthen financial sector stability.

•        Incentives for merger and acquisition provided

•        Policy of gradually reducing cash transactions. 

•        Provision to be made to regulate and supervise the licensed institutions involved in foreign currency transactions. 

•        Necessary provision to be made to regulate overseas foreign exchange expenses on studies and group travels. 

•        In view of the Visit Nepal Year 2020, arrangements will be made for the BFIs to open separate foreign currency exchange counter facilities at major tourist destinations

•        Necessary coordination will be made to sell foreign employment bond and citizen saving bond throughout the year in order to mobilize remittance income in national priority sectors and encourage the use of formal channels for remittance inflow.