Kathmandu, December 2: Liquidity has piled up in banks as they have an excess of investable funds. Banks are calling for borrowers, but investors remain in a wait-and-see mode. With the private sector being the first target of the recent movement, confidence among investors has not yet recovered. Economic sectors have expanded, but liquidity management has become increasingly challenging.
In this context, Nepal Rastra Bank has released the first quarterly review of the Monetary Policy. In the review, the central bank has reduced the policy rate and introduced a policy to double the existing limit on personal loans provided by banks and financial institutions.
According to the review, the policy rate has been reduced from the previous 4.50 percent to 4.25 percent. Likewise, the Standing Liquidity Facility (SLF) rate, which forms the upper limit of the interest rate corridor, has been reduced from 6 percent to 5.75 percent, while the Standing Deposit Facility (SDF) rate— the lower limit— has been kept unchanged at 2.75 percent.
The limit on personal overdraft loans provided by banks and financial institutions has been increased from Rs. 5 million to Rs. 10 million. The maximum ceiling for collateral-based loans issued by microfinance institutions has been increased from Rs. 700,000 to Rs. 1.5 million.
Additionally, the quarterly review covers the loan-to-deposit ratio (CD ratio), the status of foreign exchange reserves, and the updated inflation projection. Nepal Rastra Bank has maintained its estimate that average inflation for the current fiscal year will remain within 6.5 percent.
The central bank notes that the foreign exchange reserves are sufficient to cover more than 12 months of goods and services imports. The provision requiring the CD ratio to remain within 80 percent has also been kept unchanged, which is said to encourage prudent liquidity management.
With the central bank introducing a review aimed at facilitating credit flow and business operations, the private sector has reacted positively. After facing difficulties following the Gen Z movement, the private sector is hopeful that the revised monetary policy will help improve the investment climate.
Due to low demand for loans from the private sector, trillions of rupees in liquidity (investable capital) have accumulated in the banking system. In the absence of investments, around Rs. 1.1 trillion remains idle in banks and financial institutions. This has not only affected the balance sheets of banks but has also raised concerns that the lack of enthusiasm in private businesses may negatively impact economic production.
In such a situation, the positive signals conveyed by the monetary policy review should motivate industrialists and entrepreneurs to take initiative, said former governor Dipendra Bahadur Kshetry.
Kamlesh Agrawal, President of the Nepal Chamber of Commerce, said the flexible monetary policy review has encouraged the private sector. However, given the current adverse circumstances, he believes the monetary policy should have provided even more concessions to boost private-sector confidence and create a more favorable investment environment.
Birendra Raj Pandey, President of the Confederation of Nepalese Industries, said the monetary policy review will help increase cash flow in the market. From personal overdraft loans to microfinance credit expansion, the focus on easing loan investment— including reducing interest rate corridors— will support credit growth, he stated.
Following the Gen Z movement, as the private sector attempts to rise from the ashes, the monetary policy review is expected to bring positive changes.
People’s News Monitoring Service.
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