NRB adopts flexibility in policy rate and refinance through third review of monetary policy 2022/23

Published On: May 12, 2023 03:00 PM NPT By: Republica  | @RepublicaNepal

NRB says it takes expansionary measures to address the ongoing economic slowdown

KATHMANDU, May 12: Nepal Rastra Bank has reduced the bank rate by one percent, targeting to address the ongoing economic slowdown of the country.  

Unveiling the third quarter review of the monetary policy 2022/23, the NRB took a soft policy to reduce the market interest rates and to increase money supply. The central bank has lowered the bank rate to 7.5 percent from 8.5 percent.

At a time when the country’s economy has been undergoing economic recession, which is largely blamed for the high interest rates being charged by the banks, the NRB has reduced the bank rate. According to the NRB, the revised bank rate will help reduce the interest rates on both deposits and loans.

While the consumption of everyday essentials has fallen, transactions related to almost all goods and services including those of electrical appliances, automobiles, restaurant business and real estate business, among others have gone down by a notable amount in recent days, according to traders.

The recent report of the National Statistics Office (NSO) shows that the Nepali economy posted a pathetic performance in the current fiscal year. The country achieved an economic growth rate of a mere 0.8 percent in the first quarter (between mid-July and mid-October).

Likewise, the growth rate fell to a negative of 1.1 percent in the second quarter (between mid-October and mid-January). Furthermore, the NSO has projected that the country’s economic growth rate will be just 2.16 percent in the current fiscal year, almost four times lower than the government’s target.

Keeping in view the worsening economic condition of the country, the NRB has also taken flexibility to allow the banks expand their capacity for credit expansion. Through its revised policy, the central bank has continued allowing banks to include the government bonds they hold to consider for the bases of credit-deposit (CD) ratio. The provision will be put into effect till mid-July 2024. Currently, the central bank has asked banks to maintain the threshold of 90 percent of the deposit bases while they issue loans to their clients.

Likewise, the NRB has announced to provide refinancing facilities to the businesses that faced negative growth for consecutive two quarters. The limit of the refinancing amount has been reduced to Rs 6 billion.

The loans of up to Rs 50 million have been provided the facilities to restructure and reschedule their loans until mid-July 2024. However, the provision is applicable to the businesses related to hotel and restaurants, livestock farming and construction work. 


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