A Contractionary New Monetary Policy 2079/80, Good Job NRB!!
Our country Nepal is going through some economic difficulties because of its own mistakes and international events whose effects are beyond its control. Rising fuel prices, food prices, increasing rates of the dollar, inflation, low rise in manufacturing, the decline in remittance, liquidity crunch, etc. are some reasons due which we are facing a crisis situation that is nothing like the situation in Sri Lanka so folks don’t get hyper about it!!!
The 10 special facts about the current monetary policy which is supposed to stabilize the declining economy are as follows:
1. Monetary Policy 2079/80 – Separate Interest Rate:
In the new monetary policy has decided to determine the separate interest rate for trading and manufacturing sector respectively. This allows banks and financial institutions to add a premium of 2% in the base rate to determine the interest rate for the manufacturing sector which includes the production of agricultural products, animal husbandry, fisheries, and export-oriented businesses.
2. Monetary Policy 2079/80 – Change in Interest Rates:
The rates under the interest rate corridor have been increased by 1.5 percentage points and the bank rate has been maintained at 8.5 percent, the policy rate at 7.0 percent, and the deposit collection rate at 5.5 percent.
3. Monetary Policy 2079/80 – Cash Ratio:
The mandatory cash ratio to be maintained by banks and financial institutions will be increased by 1 percentage point to 4 percent with effect from August 1, 2079.
4. Monetary Policy 2079/80 – Liquidity Ratio:
By the end of Poush 2079, the legal liquidity ratio to be maintained by banks and financial institutions will be increased and it will be arranged to reach 12 percent for commercial banks and 10 percent for development banks and finance companies.
5. New Conditions for Merger and Acquisitions:
Those commercial banks and microfinance financial institutions that merge within their own categories or are acquired and conduct integrated business by the end of Poush 2079 then only the arrangement will be made to provide discounts and facilities related to mergers and acquisitions provided by this bank.
6. Conditions for Penalty Rates:
Enterprise and businesses that have availed loans up to a maximum of 5 crores from banks and financial institutions will not be charged penal interest if they pay the loan principal and interest by the end of Asoj 2079.
7. Information Technology:
When disbursing loans to the private sector for the construction of information technology and industrial parks, an arrangement will be made to determine the interest rate by adding a maximum of 2 percentage points to the base rate.
8. Conditions for Securities based Loans:
A maximum limit of Rs.12 Crores will be maintained so that a single customer limit of margin loans can be taken from one or all licensed financial institutions. After becoming regular and organized through stock brokers, such margin loan arrangements will be removed.
Another condition is that ” The risk weight of loans flowing through share securities is maintained at 100 percent for loans up to 25 lakh rupees and 150 percent for loans above that.”
9. COVID Relief:
Loans to the productive sectors including agriculture, small enterprises, exports, and those affected by the Covid-19 epidemic will continue to be refinanced. The re-loan facility will be gradually reduced and made available by the end of Ashad 2081 so that the balance of the relevant fund is equal.
10. Incentives for the Foreign Reserve Increment:
NRB has stated that incentives will be provided to those who shall contribute to the influx of hard currency by providing the services regarding Information Technology along with the other services as well.
Conclusion: Will NRB succeed in its objectives?
Governor Mr. Maha Prasad Adhikari presented the vaunted monetary policy among the major hype and fan fair last Friday but will he succeeds in stabilizing the economy and not leading it to the path of bankruptcy remains to be seen. Good Luck to you Mr. Governor!!!
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