With the unveiling of the monetary policy for the current fiscal year, our pandemic-hit national economy is expected to recover. Nepal Rastra Bank (NRB), the country’s central bank, hopes the new policy will help maintain macroeconomic and financial stability, boosting economic recovery opportunities.  The latest policy aims at expanding the mobilisation of available financial resources to increase productivity, entrepreneurship, create jobs, and gain sustainable economic development in the country. 

Curbing inflation, regulating liquidity, money supply and long-term moderate interest rates are key factors in the current monetary policy, which has set a target to keep inflation at 6.5 per cent. Based on the gross domestic product of the prevailing prices, the NRB expects broad money supply to increase by 18 per cent and credits to the private sector by 19 per cent. The bank has kept liquidity facility rates at 5 per cent. The deposit rate is expected to go up from 1 to 2 per cent and the repo rate will increase from 3 to 3.5 per cent this fiscal year. Meanwhile, commercial banks, development banks and finance companies need to maintain the existing statutory liquidity ratio to 10, 8 and 7 per cent, respectively. The new policy will make the interest rate corridor effective by making the open market transaction more active. It will also strengthen the electronic and digital payment systems.

The central bank has abolished the existing provision of the credit to core capital plus deposit ratio (CCD) and has instructed the Banks and Financial Institutions (BFIs) to maintain a maximum credit-deposit ratio to 90 per cent. Increasing small investors' access to loans at minimum interest, providing loans at a base rate to industries producing epidemic-related vaccines, refinancing facilities to companies making charging stations are included in the new policy that encourages remittance inflow and mergers among BFIs. Refinancing systems and business-continuity loan programmes will be carried out to revive the businesses, tourism sector, communications, transport, party palaces, gymnasiums, cinemas, restaurants and entertainment businesses that took a severe hit during and after the pandemic's outbreak since 2020. Extension of the duration for paying interest and loan payments by assessing the status of debtors who have failed to pay loans owing to prohibitory orders has also been proposed.

What is remarkable about the new policy is that the Nepali private sector has welcomed it. They see that the policy would make positive impacts on the post-COVID revival of industrial and business sectors, entrepreneurship development and small and medium enterprises. The abolishment of the CCD ratio and requirement of BFIs to maintain a maximum of 90 per cent credit-deposit ratio will increase liquidity in the market. They have applauded the central bank for making provisions such as freezing of interest on loans to tourism entrepreneurs, 1 per cent higher interest on remittance deposits in BFIs, promotion of digital payment systems, loans to women, and policy review on blacklisting of customers. They were, however, not happy over the ceiling on margin lending at a time of share-market growth and NRB’s failure to include suggestions of easing real estate and auto loans. They also suspected the target of keeping inflation at 6.5 per cent is achievable. In a nutshell, the new monetary policy is a praiseworthy document because of its inclusion of various tools and provisions for achieving a quick economic recovery when the country's economy is still gripped by the ill effects of the pandemic.