SANGAM

NRB monetary policy focuses on price stability

By Sangam Prasain
Kathmandu, July 24,2009:
Governor of Nepal Rastra Bank (NRB) Dipendra Bahadur Kshetri on Friday unveiled the Monetary Policy for the fiscal year 2066/067.
The monetary policy has set its stance to be firm and cautious towards price stability, controlling the banks and financial institutions towards their excessive exposure to the share market and the supply of money in order to attain growth and stability of the country’s economy, Kshetri said.
The central bank’s monetary policy has laid down its firm stance to high inflation pressure from the monetary expansion through the adjustment in the petroleum prices and improvement in distributional channel. The annual average consumer price inflation is projected to be moderate at 7.0 per cent in 2009/10.
In the face of deteriorating investment environment, there could be an increase in exposure of commercial banks and financial institutions to the real sector, which might lead to surge of real estate price. "To control a bubble in the real sector, monetary policy stance on banks credit flow to this sector has been taken firmly."
The international reserve is sufficient to cover the merchandise and service imports for at least six month. In order to meet the target, the Balance of Payments (BoP) surplus of Rs. 18 billion is projected for 2009/10.
The growth rate of broad money is projected at 17.0 per cent for 2009/10. It is estimated to grow by 21.0 per cent in 2008/09.
The gross domestic credit of the banking sector is projected to expand by 19.3 per cent. Of the total domestic credit of banking sector, the credit to the private sector is projected to increase by 20.7 per cent.
Similarly, the range of counterparties (commercial banks, development banks and financial institutions) for the conduct of monetary policy has been kept unchanged.
The practice of undertaking the monetary policy only with the counterparties will be continued and the short-term Standing Liquidity Facility (SLF) is entitled only to counterparties.
The cash reserve ratio (CRR) has been kept unchanged at 5.5 per cent and the bank rate is kept unchanged at 6.5 per cent. The existing provision of refinancing facility of Rs. 2 billion to sick industries and the refinancing rate at 1.5 per cent will be continued for 2009/10.
The provision of refinancing rate to the rural development banks at 3.5 per cent has been continued.
Similarly, the export credit facility in domestic currency has been unchanged at 2.0 per cent. Commercial banks are allowed not to charge more than 5.0 per cent to the concerned borrowers on such facility.
The deprived sector credit requirement for the development banks has been increased to 2.0 per cent from 1.5 per cent and for finance companies to 1.5 per cent from 1.0 per cent.
According to the monetary policy, the commercial banks, development banks and finance companies are now required to invest in government securities ata rate of 6.0 per cent, 2.0 per cent and 1.0 per cent respectively of their total domestic deposit mobilization by second quarters of 2009/10. Such ratio should be maintained at a rate of 8.0 per cent, 3.0 per cent and 2.0 per cent respectively by the end of the fourth quarter of 2009/10.
In order to avert the excessive concentration of credit in a single sector, single obligor limit has been set at 50 per cent, including 25 per cent from fund based and remaining from non-fund based. The limit has been slashed to 25 per cent of core capital including that of non-fund based effective from July 17, 2010.
In the context of the possibility of establishment of foreign bank branches and offices in Nepal beginning 2010, the Memorandum of Understanding (MoU) will be prepared for home-host supervisory relation within this year.