The National Bank has stated that it will review the arrangements related to fixed deposit facilities provided to banks and financial institutions to make the interest rate corridor more effective.
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Nepal Rastra Bank has announced the third quarterly review report of the monetary policy for the current fiscal year 2082/83, stating that most of the policy arrangements have been kept unchanged.
The bank has stated that it has continued the flexible monetary policy adopted since the beginning of the fiscal year, considering the forecast of foreign exchange reserves and inflation to remain in line with the target and the low economic growth.
According to the review, the existing arrangements related to the interest rate corridor, bank rate, cash reserve requirement (CRR) and statutory liquidity ratio (SLR) have been maintained. However, the Rastra Bank has stated that the arrangements related to the fixed deposit facility provided to banks and financial institutions will be reviewed to make the interest rate corridor more effective.
According to the central bank, according to the initial estimate of the National Statistics Office, Nepal's economic growth rate in the current fiscal year is expected to be 3.85 percent. Although the growth rate of the agricultural sector is limited to 1.58 percent due to adverse weather and natural disasters, the growth rate of the industrial sector is estimated to be 5.67 percent and the growth rate of the service sector is estimated to be 4.21 percent.
According to the National Bank, the share of investment in gross domestic product has increased in the current fiscal year. It is expected that there will be a gradual improvement in aggregate demand with the expansion of wholesale and retail trade, domestic and foreign tourism, hydropower, finance and insurance, transportation and storage, and information technology sectors.
The review states that since the government has prioritized governance, economic and legal reforms, the continuation of the existing monetary policy direction will increase investment and help expand economic activity. The National Bank has stated that although inflation remains below the target, there is a risk of pressure on price increases due to global geopolitical tensions. Stating that the ongoing war in West Asia has affected the supply chain of petroleum products, raw materials required for industry and some consumer goods, it has stated that the price of petrol has increased by 35 percent and the price of diesel by 58 percent from Falgun 16 to mid-Baishakh.
However, the average consumer inflation till the third quarter of the current fiscal year is 2.39 percent and the annual average inflation is projected to remain within the target range. The Rastra Bank has stated that the current account, balance of payments position and foreign exchange reserves are increasing due to a significant increase in remittance inflows towards the external sector. However, as about 40 percent of remittances to Nepal come from West Asia, the risk that the ongoing tension in that region could put pressure on remittance inflows, trade deficit and foreign exchange reserves has been pointed out.
According to the review, although the non-performing loans of banks and financial institutions have increased slightly, such loans are expected to improve with the improvement in economic activities. The National Bank has stated that overall financial stability has been maintained, stating that the ratio of core capital and capital fund to risk-weighted assets was within regulatory standards as of mid-Chait 2082.
The National Bank has stated that there has been a situation of excess liquidity in the financial system for the past 3 years and that the bank is alert to take necessary steps to manage the impact that such a situation may have on macroeconomic indicators.
