Nepal Rastra Bank announced the new monetary policy for the fiscal year 2023/24 on Sunday.
The central bank’s Governor Maha Prasad Adhikari launched the new policy in a televised address this afternoon.
Here are key points of the policy that might affect your economic life for the newly begun fiscal year:
In the current fiscal year, Nepal Rastra Bank (NRB) has set a target of limiting inflation to 6.5 per cent. To achieve this, the central aims to deploy monetary management strategies to maintain stable economic conditions and prevent price pressure resulting from excessive monetary expansion. In line with ensuring financial stability, NRB has established a targetted loan growth of 11.5 per cent.
In the current fiscal year 2023/24, Nepal Rastra Bank has maintained its previous policy regarding the real estate business in their monetary policy.
In the fiscal year 2022/23, the monetary policy stipulated that the maximum loan amount allowed for real estate mortgages would be based on a ratio of up to 30 per cent of the fair market value in Kathmandu Valley and up to 40 per cent in other locations. It is noteworthy that this particular policy remains unaltered in the current fiscal year’s monetary policy as well.
However, the monetary policy has given some concessions to the general public who are buying their first home. The loan limit for first-home buyers has been increased to Rs 20 million. Earlier it was 15 million.
The government has introduced a policy to make it easier for Nepalis to visit abroad. The monetary policy has given a significant discount on the dollar exchange facility.
Starting this year, Nepalis planning to travel to countries other than India will benefit from an increased passport facility allowance of USD 2,500 twice a year, compared to the earlier limit of USD 1,500. Additionally, the government has introduced a 2 per cent foreign tourism fee for Nepali citizens embarking on foreign tours.
Nepal Rastra Bank has reduced the policy rate. It has kept the bank rate unchanged at 7.5 per cent. While announcing the monetary policy, NRB announced that the policy rate has been reduced by 50 basis points bringing it down to 6.5 per cent. Similarly, while keeping the bank rate unchanged at 7.5 per cent, the deposit collection rate has been reduced from 5.5 per cent to 4.5 per cent.
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As announced by the government’s 2023/24 budget, NRB will facilitate the establishment of a separate regulatory body to regulate cooperatives. Now, a separate specialised regulatory body will be established for the effective regulation and supervision of savings and credit cooperatives.
There is no change in the existing arrangement concerning share securities. Similar to the previous monetary policy, a maximum limit of Rs 120 million was set for the single customer’s margin loan limit from one or multiple licensed financial institutions.
Despite demands from share investors to ease the loan restrictions on share mortgages, the monetary policy for the current fiscal year did not introduce any changes in this regard. Investors have been demanding that the loan of share mortgage should be eased. However, the monetary policy has announced that the existing risk-weighting arrangements for share mortgage loans, real estate loans and hire purchase loans will be reviewed.
NRB has announced a monetary policy to support industries/businesses including information technology and communication (ITC) which are operated with the aim of exporting services.
Such industries and businesses can establish contact offices in third countries, purchase software or programs and install equipment, make payments to foreign agencies or transfer money to their own foreign accounts through commercial banks.
As part of this initiative, the monetary policy has declared that commercial banks will offer foreign exchange facilities up to a certain percentage of the foreign currency earnings generated by the industry. This will be granted to the industry based on specific documents as outlined in the policy.
On Sunday, NRB reaffirmed its practice of providing an additional one per cent interest on remittances deposited into bank accounts. This arrangement was upheld in the monetary policy announcement for the ongoing fiscal year.
NRB has set a goal to reduce the number of microfinance institutions in the country and wants many to merge. It is planning to implement recommendations from a comprehensive study report to effectively address challenges faced by the microfinance sector.
