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By Our Reporter

The new monetary policy unveiled by the Nepal Rastra Bank (NRB) on Friday is expected to help end economic recession in the country.

The new ‘cautiously flexible’ Monetary Policy for the current Fiscal Year 2024/25, removing the ceiling of margin lending for institutional investors and promoting private sector lending has received praises from Prime Minister KP Sharma Oli, Finance Minister Bishnu Paudel and the private sector.

The business community of Biratangar has also hailed the new policy.

The Monetary Policy has announced a reform on stance on real estate lending, loans to Small and Medium Enterprises (SMEs) and laws on cheque dishonour. However, it has maintained that lending to the manufacturing sector would be promoted and the quality of loans would be improved to maintain financial stability.

The NRB said that the inflation would be contained at 5.0 per cent and the monetary expansion would be made in a way that would not pressurise the price of goods and services in the market. This target does not look risky considering the average inflation of 5.62 per cent in the 11 months of the last Fiscal Year 2023/24 and 4.17 per cent year-on-year basis in mid-June 2024 against the annual target of 6.5 per cent.

Announcing the Policy, the Governor of the Nepal Rastra Bank, Maha Prasad Adhikari, termed it as the ‘Monetary Policy with caution’ as it would offer the final facilitation to the businesses and financial sectors that were impacted by the COVID-19 pandemic.

“We have made arrangements to monitor the impact of each measure adopted by the Monetary Policy for this fiscal,” he said, stressing that the measures adopted by the Policy would be fully implemented.

According to Governor Adhikari, the central bank has planned to implement reforms in a few key areas that will help in business and economic growth.

Limit for Margin Lending Removed

Although the NRB has granted consent to 34 securities brokerage companies to mobilise margin lending with the aim of reducing the direct loan investment from Banks and Financial Institutions (BFIs), it has continued with the loan against the securities for the institutional investors. It removed the existing limit of a maximum Rs. 200 million for margin lending.

Likewise, the existing credit notification and blacklisting directives will be revised to amend the arrangements such as blacklisting based on check dishonour and banning banking transactions.

In order to facilitate enterprise development in areas like industries that support agriculture, information technology and tourism, the provision of not charging more than a 2 per cent premium on the base rate for SMEs of up to Rs. 20 million will be reviewed to expand the facility in those areas.

Similarly, the Monetary Policy for this year aims at maintaining the foreign exchange reserves sufficient to cover the import of goods and services for seven months.

The monetary policy of the FY 2023/24 aimed at maintaining foreign exchange reserves sufficient to support at least seven months of goods and services imports, and the foreign exchange reserves maintained in mid-June are sufficient to support 12.6 months of goods and services imports.

Likewise, the portfolio size for the real estate is increased to Rs. 25 million from Rs. 20 million.

The new Monetary Policy has said that mergers and acquisitions between microfinance financial institutions (MFIs) and their branches will be encouraged.

In sum, the new monetary policy addressed the issues raised by the private sector to facilitate the flow of money in the markets. The economy was contracted after the Government introduced tight measures to tackle the problems invited by the COVID-19 pandemic and the Russian invasion of Ukraine.  Now the NRB, through the new monetary policy, has terminated not only the measures but has introduced further flexible provisions.

The Monetary Policy has also addressed the programmes announced by the government through the budget of the current FY 2024/25. They include loans against the collateral of agricultural produce, promotion of innovation, loans to the migrant workers based on the assurance of sending remittance to the bank account, and increased facilitation for the entrepreneurship loan.

Through the Monetary Policy, the central bank has brought down the bank rate to 6.5 from the existing and policy rate to 5 per cent from 5.5 per cent.