MONETARY
POLICY
2080/81
Content
01 Introduction
02 Background
03 Review of Monetary policy of 2079/80
04 Overall Economic Status and Scenario
05 Monetary Policy Framework for 2080/81
06 Financial Sector and Foreign Exchange Policy for 2080/81
07
Introduction Monetary policy is a set of tools implemented
by Nepal Rastra Bank to regulate and control
the money supply and interest rates, with the
What? aim of achieving specific economic goals, such
as controlling inflation, promoting economic
growth, and maintaining price stability.
Unveiled by Governor of
Nepal Rastra Bank, Mr. Who?
Maha Prasad Adhikari.
When? Shrawan 7, 2080
Background
Review of FY
2079/80
Indicators /Figures Targets (FY 2079/80) Actual (Up to JESHTA 2080)
Average Inflation 7% 7.77%
Forex Reserve Equivalent to the imports of 7 Equivalent to the import of 9.6
months goods and services. months of goods and services.
Weighted Average Interbank Rate 5.5% - 8.5% 7.13%
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Status of Monetary management and Interest
Rate
INDICATORS Ashadh 2080 Ashadh 2080
Interbank lending rate BFIs 2.98% 6.99%
Interbank lending rate BFIs 6.14% 10.66%
Indicators Jestha 2080 Poush 2079
Weighted Average Base Rate of Commercial Banks 10.18% 10.91%
Weighted Average Rate of Deposit of Commercial Banks 7.99% 8.51%
Weighted Average Rate of Credit of Commercial banks 12.53% 13.03%
Supply Of Liquidity in FY 2079/80:
Repo 414.47 Arab
Direct Purchase 89.70 Arab
Open Market Operation 395.97 Arab (472.60 Arab in FY (2078/79)
SLF 2727.11 Arab (9170.10 Arab in FY 2078/79)
Purchase of Forex 712.50 Arab (355.56 Arab IN FY 2078/79)
Contraction OF Liquidity in FY 2079/80 has been of 108..20 Arab –Using Reverse Repo Nand Deposit
Collection.
Contraction OF Liquidity in FY 2079/80 has been of 108..20 Arab –Using Reverse Repo Nand Deposit
Collection.
Sectors of Lending Sectors.
At the end of Jestha 2080.
Commercial banks:
13.1 % of the total loans in the Agricultural sector (Rs. 552 billion
99 million).
6.8% (Rs. 286 billion 77 million) in the Energy sector.
9.9% in the field of Micro, Domestic, Small and Medium
Enterprises
Development Banks:(Rs. 418 billion 36 crore) as investment.
24.9% (Rs. 113 billion 18 million) of total loans in Agriculture,
Micro, Domestic and Small Enterprises / Business, Energy and
Tourism sector.
22.3 % (Rs. 19 billion 65 billion) from finance companies are
invested.
6.1 % (Rs. 260 billion 84 crores) of the total loan disbursements
from commercial banks went to the poor.
9.1 % (Rs. 42 billion 32 million) and 6.1 percent (Rs. 5 billion 65
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Status of the provisions of the Monetary
Policy 2079/80
Commercial bank have to maintain average interest rate difference
within 4% where as development banks and finance companies
have to maintain 4.6%.
Banks and Financial institutions have to provide wholesale loans to
the microfinance institutions by adding a premium of only 2% to the
base rate.
When providing loans to the private sector for the construction of
technological parks and industrial parks, a system has been
implemented to determine the interest rate by adding a maximum
of 2 % to the base rate.
When providing loan to industries related to food production,
fishery, exporting companies up to 2 crore , a system has been
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Status of the provisions of the Monetary
Policy 2079/80
To increase liquidity management , banks and financial institutions
can automatically use the overnight liquidity facility from Poush
2079.
If the average interbank interest rate is lower/higher than the
specified rate, open market transactions will be conducted.
The aim of reducing interest rate fluctuations by making liquidity
management effective, reducing financial intermediation costs and
strengthening monetary policy transmission.
The monetary policy rule has been decided by taking the annual
target inflation and foreign exchange reserves as the main basis for
determining the policy rate.
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The nature of monetary policy for the FY 2080/81
Objectives of Monetary Policy.
A strategy has been adopted to manage the total internal demand i
order to help sustain the economic activity while maintaining the
external sector progress.
Monetary policy has been focused on achieving macroeconomic
stability by managing overall demand by maintaining a balance
between internal demand
and supply.
Priority to increase production capacity by mobilizing financial
resources in the areas of capital formation to achieve high economi
growth sustainably while maintaining price and external sector
stability.
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When the policy rate is low compared to the natural interest rate, the external
sector is under pressure and when it is high, domestic economic activity is
likely to be affected. Hence, in addition to inflation and external sector
scenarios, the natural interest rate is also taken into account when setting the
policy rate.
Nepal's domestic savings has been below 10 percent of GDP for a long time. Due to low
savings and high investment demand, the resource gap is increasing. Due to the low
productivity of public and private investment, the international competitiveness has not
been increased, while the investment multiplier and domestic savings rate are low. In order
to increase the savings rate, it is necessary to increase the speed of capital formation by
deploying public and private investments in areas that give maximum returns. In this
context, a strategy has been adopted to set the policy direction so that the real interest rate
of deposits is positive to encourage savings.
Compared to the GDP, the size of credit flowing to the private sector in Nepal is the highest
in South Asia. The private sector of Nepal has a high debt burden when counting the loans
from banks and financial institutions, cooperatives, insurance companies, civil investment
funds and employee provident funds. Non-performing loans have started to increase due to
high debt burden situation, weak relationship between credit and real sector and non-
commercial activities that have emerged recently in the financial sector. In the above
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Conduct of monetary policy
A flexible monetary policy has been carefully adopted to keep the
economy running while maintaining price and external stability.
The priority of the monetary policy is to increase the internal
production capacity by channeling the financial resources to the
productive sector.
Regulatory policies have been formulated in order to support the
monetary policy in order to make the monitoring, regulation and
supervision of large loans effective, to reduce over-centralization
of loans, to give priority to small and medium productive loans
and to promote financial stability by increasing the quality and
accessibility of loans.
Structures of Monetary Policy
The fixed exchange rate of Nepali rupee with Indian rupee has been kept unchanged
as a monetary policy constraint.
The weighted average interest rate of interbank transactions of banks and financial
institutions has been kept unchanged as the operating target.
The policy rate will be determined based on the ability of the foreign exchange
reserves to support imports and the annual target inflation.
Based on the status of operational targets, the interbank interest rate will be kept
within the interest rate corridor by actively conducting open market transactions.
The goal of monetary policy is to maintain foreign exchange reserves to cover at least
7 months of goods and services imports.
In order to keep the inflation within 6.5 percent, monetary management will be done
in such a way that the monetary expansion does not put pressure on the prices.
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Monetary Measures
Considering the internal and external economic scenario, the policy rate has
been reduced by 50 basis points to 6.5 percent. Keeping the bank rate
unchanged at 7.5 percent, the deposit collection rate has been reduced from 5.5
percent to 4.5 percent.
If the weighted average interbank interest rate taken by this bank as an
operational target is higher than the bank rate and lower than the deposit
collection rate, the secondary market transaction and deposit collection will be
opened.
The provision of permanent liquidity facility at bank rate and overnight
liquidity facility at policy rate has been maintained.
In order to make the interest rate corridor effective, arrangements will be made
to provide permanent deposit collection facility at the lower limit of the interest
rate corridor.
Mandatory cash ratio and statutory liquidity ratio have been kept unchanged.
Our Team
Niraj Shreya Nitesh
Kafle Paudel Gupta
THANK
YO U
