Highlights of Monitory Policy 2016 | Nepal

Highlights of Monetary Policy of Fiscal Year 2016-17 published by Nepal Ratra Bank (Central Bank of Nepal)

Economic and Monetary Targets

- Monetary Policy for 2016/17 aims at containing annual average CPI Inflation at 7.5 percent and maintaining foreign exchange reserves sufficient to cover the imports of goods and services at least for 8 months. Likewise the monetary policy is geared to facilitating the economic growth rate of 6.5 percent.

- In the line with the above mentioned economic target, the broad money, as an intermediate target of monetary policy, is projected to increase by 17 percent in 2016/17.

- The monetary policy set the target of internal credit growth rate of 25 percent and the private sector credit is projected to grow by 20 percent.

Operating Instruments

- Introduction of IRC (Interest Rate Corridor) – a mechanism that guides short-term market rates and helps keep all interest rates within certain band, reducing interest rate volatility .

- Two weeks repo rate, or policy rate to be fixed by adding 200 basis points, or two percentage points, to weighted average interbank rate of commercial banks of two working days ago.

- Two-week term deposit rate, or floor rate to be fixed by deducting 10 basis points from weighted average interbank rate of commercial banks of two working days ago.

- The existing provision of Mandatory Cash Reserve Ratio remains unchanged.

- The period for calculating Mandatory Cash Reserve has been increased from 1 week to 2 weeks. The daily balances of cash should not be less than 70 percent of required mandatory cash reserve ratio.

- The interest rate in case of refinance of loan to agriculture business including electricity and other productive sectors has been maintained at 4 percent. Whereas refinancing facilities is provided up to the amount equal to export amount at the interest rate of 1 percent for Ostrich farm, Cardamom farming and Bee farming.

- The provision for lending minimum of 20 percent of total credit in case of commercial banks to productive sector remains unchanged. Under this, the minimum lending to agriculture and power sector is required to increase to 15 percent from 12 percent upto Ashadh end 2074.

- The provision for minimum lending to deprived sector remains unchanged at 5 percent of total lending. However commercial banks are required to lend at least 2 percent of total lending for deprived sector through direct funding.

Forex Facilities

- Traders importing goods via third-countries using instrument like draft and telex transfer to be extended foreign exchange facility of upto $50000 for one-time payment.

- Traders buying software from India allowed to acquire one-time letter of credit worth upto $15000 from existing $10000.

- Nepali foreign currency account holders allowed to purchase goods and services worth & 15000 per year from abroad.

Other Highlights

- Loan to value (LTV) ratio for commercial real estate reduced to 50 percent from existing 60 percent for residential housing.

- Ceiling on consortium financing raised to Rs. 1 bn form existing Rs. 500 mn.

- Interest spread for microfinance institution fixed at 7 percent.

- Commercial banks directed to channel 15 percent of total loans towards agriculture and energy sectors from 12 percent.

- Investors interested in building luxury hotels in underdeveloped tourist destinations sucha as Pathibhara, Mai Pokhari, Halesi, Langtang, Swargadwari, Upper Mustang, Gadimai, Janakpurdham, Rara and Khaptad to be provided refinancing facility at 4 percent.

- Commercial Banks directed to bring down portion of institutional deposits to 50 percent of total deposit, from exiting 60 percent.

- BFIs barred from extending over 50 percent of shares’s average final value of last 180 days or current market price of the stock, whichever is lower as margin loan.

- BFIs directed to allocate at least 1 percent of profit to fulfill Corporate Social Responsibility.

- BFIs directed to allocate at least 3 percent of gross staff expenses for training and human resource development.

- Over Rs. 3 million of financial transactions to be conducted through Cheques, previous ceiling stood at Rs. 5 million.

- Microfinance development banks directed to raise minimum paid-up capital to Rs. 600 Million within mid-july ,2018