Monetary Policy 2014/15 Highlights

Nepal Rastra Bank has been adopting monetary policy the objectives of maintaining price and external sector stability, financial stability and facilitating high and sustainable economic growth, increasing financial access, control inflation, maintain external and financial sector stability, utilize credit in the productive sector and expand financial access.

The monetary policy for 2014/15 has been formulated based on the analysis of domestic economic outlook as well as changes in international economic situation. Likewise, the selection of monetary policy stance and instruments has been made consistent with the objectives and priorities undertaken by the government budget for 2014/15.Certain major concern areas of NRB in current monetary policy are interest rate stability, rein inflation at targeted level, maintain external stability, encourage merger of BFIs, financial sector stability, promoting credit to productive sector, financial service expansion, financial literacy and increase financial inclusion, managing the excess liquidity created by remittances. Following are major provisions on monetary policy 2014/15.

NRB has announced contractionary monetary policy with the objective to control the credit flow to unproductive sector because of excess liquidity created by remittances in the financial market. As per policy provision, there will be provisions to sanction sufficient fund from banking sector to achieve targeted economic growth. Major highlights of monetary policy 2014/15 are:

• CRR to be maintained by BFIs will be increased to 6 percent for “A” class, 5  percent for “B” class and 4  percent for “C” class financial institutions.
• General refinance rate will be reduced to 4.0 percent from existing 5.0 percent for agriculture, hydropower, livestock and fishery and other specified productive sectors.
• By observing the unfavorable effect that can be created by unexpected volatility of share market, further management of credit flow to loan against Share.
• For management of liquidity, BFI’s who get permission to foreign exchange transaction can invest certain percentage on foreign financial instruments.
• BFI directors and CEO’s can’t take loans from other BFIs for companies in which they own a majority stake.
• Execution of Financial Sector Development Strategy (FSDS) in this FY for financial stability, financial access and financial inclusion.
• Re-operation of bank branches that were displaced during insurgency period.
• Provision related to different classification of promoters of BFI’s are removed and put under same group.
• Gradual execution of  BASEL III provision
• Commercial banks must flow 20.0 percent of total credit to productive sector. Under this, commercial banks will have to maintain at least 12.0 percent credit flow to agriculture and energy sector. Up to 2073 Asad end, development banks and finance companies must flow 15% and 10% to productive sector.
• Merger of BFI’s for financial effectiveness will be continued and acquisition will also encouraged under acquisition bylaw 2070.
• BFI directors, CEOs barred from serving more than two terms in row.
• In BFI’s International Financial Reporting Standard (IFRS) will be implemented up to 2017.
• Moratorium on accepting application for opening new ‘A’, ‘B’ and ‘C’ class BFIs has been continued by considering the financial sector stability.
• Encourage BFI’s for the development of small and cottage industries.SME desk in commercial bank will make proactive for this.
• Provision to credit flow up to 10 lakhs (based on yearly transaction capacity) and up to lakhs to open new business to encourage small and cottage industries.
• Logical portion of shareholding which would not invite conflict of interest will be fixed.
• Central bank has introduced repo and reverse repo with a maximum expiry date of six months.
• People will get up to $ 10000 while travelling abroad for medical treatment.
• Debit and credit card issuance provisions to make online payments easier and allow online purchases worth up to $2000.
• Imposed restrictions ton those MFIs where there is heavy presence of BFIs.
• Deprived sector lending unchanged.
• Increase in the zero interest rate loan from 2 million to 3 million for certain period to “D” class microfinance to open branches in those districts where access to microfinance is low.
• Act of foreign investment to be amended and draft presented to Nepal government.
• Banks to invest up to certain percentage of their foreign currency deposits in call deposits, certificate of deposits and other secure debt instruments in foreign countries.
• Hiked the maximum limit of foreign exchange given to traders through drafts and TTs for importing goods from countries other than India through the medium of draft to $35000 from existing $30,000.

In addition to these, there are other lots of provisions adopted by Nepal Rastra Bank for monetary control for FY 2014/15.

Source :Monetary Policy 2014/15 ,Nepal Ratra Bank Nepal