25 Major Highlights of Monetary Policy 2076/773 min read

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Monetary Policy is the macroeconomic policy formulated by the central bank that is aimed at influencing inflation and interest rate by controlling and regulating the money supply to the public and flow of credit. The monetary policy stance aims at fulfilling the objectives of fiscal policy.

26 Major Highlights

  1. Inflation within 6 percent for maintaining price stability.
  2. To maintain foreign exchange reserves sufficient to cover the prospective imports of goods and services for at least 7 months in 2019/20.
  3. To facilitate the economic growth of around 8.5 percent as targeted by the annual budget of the GoN.
  4. The limit for the growth of broad money has been set at 18 percent. The domestic credit and private sector credit growth rates are projected to be 24 percent and 21 percent respectively.
  5. Open market operations will be conducted by monitoring the excess liquidity of the BFIs.
  6. The interest rate corridor introduced to minimize the volatility of short-term interest rates.
  7. The existing standing liquidity facility (SLF) rate as the upper bound of the Interest Rate Corridor has been reduced to 6 percent, repo rate as the policy rate to 4.5 percent, and deposit collection rate as the lower bound to 3 percent.
  8. The cash reserve ratio to be maintained by the BFIs has been kept unchanged at 4 percent.
  9. Statutory Liquidity Ratio has been kept unchanged at 10 percent for commercial banks, 8 percent for development banks, and 7 percent for finance companies.
  10. Bank rate reduced to 6 percent from 6.5 percent.
  11. Refinance rate on SMEs against the collateral of ‘Pass’ loan up to Rs. 1 million will be reduced to 3 percent.
  12. The limit for deposit mobilization from a single institution by the BFIs will be reduced to 10 percent of their total domestic deposit liability.
  13. Commercial banks required to issue debentures of at least 25 percent of their paid-up capital.
  14. Commercial banks allowed to utilize 100 percent of the resources raised through the issuance of debentures for extending loans.
  15. Limit for the Debt service to Gross Income Ratio (DTI) will be introduced for the installment-based non-business loans.
  16. Mandatory requirement of PAN of the borrower borrowing at least Rs 5 million.
  17. Priority sector lending kept unchanged. 10 percent of total credit to agriculture and 15 percent of total credit to the energy and tourism sector.
  18. The minimum investment limit for the selection of projects by the Infrastructure Development Bank will be set at Rs. 300 million.
  19. BFIs shall extend at least 5 percent of their total credit to the deprived sector.
  20. Special facilities to those intuitions that go in for the merger and acquisition process.
    1. Extension of deadline to meet priority sector credit requirements.
    2. Extension of deadline to reduce the interest rate spread.
    3. No prior approval from the bank is required to establish new branches.
    4. Extension of deadline to issue debentures worth 25 percent of paid-up capital.
    5. Relaxation in a cooling period of six months for the members of the board of directors, chief executive officer, and deputy chief executive officers.
  21. Basel II to be fully implemented in development banks and finance companies.
  22. MFIs will be allowed to open one branch in a sub-metropolitan city or district headquarter only after opening one branch in the municipality and rural municipalities.
  23. MFIs will be required to disburse one-third of total credit to the agriculture sector.
  24. Real-Time Gross Settlement system (RTGS) will be brought into operation within the current fiscal year.
  25. BFIs will be required to keep the Cash Deposit Machine (CDM) for collecting deposits.

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READ  Highlights of Budget 2076-77


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