February 13, 2018 06:00 AM NPT
KATHMANDU, Feb 13: Nepal Rastra Bank (NRB) has kept most of its rates unchanged in the half-annual review of the monetary policy for the Fiscal Year 2017/18.
Departing from the trend of holding a press meet to communicate its mid-term review of the policy, the central bank on Monday unveiled its mid-term review report through its website. The central bank released its mid-term review report even before the government made its mid-term fiscal review.
The central bank, however, revised down the annual inflation forecast by one percentage point to 6 percent. The central bank had announced to tame the inflation to 7 percent in its monetary policy unveiled last year. “However, there is still a risk of recent rise in the price of petroleum products and construction materials putting pressure on inflation,” the mid-term review report states.
The cash reserve ratio, bank rate, statutory liquidity ratio, repo rate, policy rate for interest rate corridor and two-week deposit rate remain unchanged in the remaining six months of the current fiscal year, according to the NRB.
While saying that the economic growth will remain 'satisfactory', the central bank indicated the government's target of 7.2 percent is not gettable.
“Since the growth in farm output is likely to be less than expected, the tempo of non-agricultural activities continues to gather momentum as the elections of all three layers of the country has been held,” said Nara Bahadur Thapa, the Research Department Chief of the NRB. “A steady growth in electricity generation, improved supply situation and a pick-up in construction activities are expected to help maintain pace in non-agricultural activities. The overall economic growth is expected to remain satisfactory in the current year. Lower than the government target, but somewhere between 5 percent and 6 percent,” added Thapa.
Another highlight of the mid-term monetary policy is the plan of the central bank to increase the refinance fund size by Rs 5 billion. The NRB, in its monetary policy in July last year, had said that the refinance fund will be increased to Rs 20 billion from Rs 10.84 billion by channelizing a portion of its profits including an additional amount of Rs 5 billion from Economic Rehabilitation Fund. The government, however, is yet to transfer Rs 5 billion from the rehabilitation fund to the refinance fund.
Now, the total refinances fund that supports extending concessional credit to strategically important sectors, including hydropower, will be of Rs 25 billion.
LENIENT APPROACH ON ENFORCEMENT OF PRUDENTIAL LENDING LIMIT
However, the central bank seems to be taking a lenient approach in enforcing prudential lending limit for bank and financial institutions (BFIs). Though the NRB has said that it will monitor the daily position of credit to core capital-cum-deposit (CCD) ratio of banking institutions, it will, however, penalize them only in case the breach of the prudential lending limit in monthly average ratio.
The announcement of the central bank comes as a relief for the banking institutions who were worried about the action from the central bank about the breach of the CCD ratio of 80 percent. Most of the banks are close to the saturation level due to the mismatch in deposit and loan mobilizations.
However, Executive Director Thapa, said that the central bank will keep on warning banking institutions to bring their CCD ratio within regulatory limit through its daily monitoring.
Similarly, the NRB has also announced a new rule for BFIs to curb the rising flow of loans and advancements of BFIs as overdraft. According to the NRB, BFIs will not be allowed to float more than 15 percent of their total loans in overdrafts.
According to the NRB data, the overdraft types of loans account for 17.8 percent of total loans of bank and financial institutions as of mid-January 2018. BFIs, which have crossed the overdraft loan ceiling, will be required to bring such loans under 15 percent by mid-January 2019, according to the mid-term review.