NRB Releases Monetary Policy for Fiscal Year 2081/82
July 26, 2024 | Investopaper
Nepal Rastra Bank has introduced its monetary policy for the current financial year 2081/82. The policy was announced following a meeting of the board of directors on Friday.
Key changes in the policy include reducing the bank rate from 7 percent to 6.5 percent, lowering the policy rate from 5.5 percent to 5 percent and maintaining the lower limit of the interest rate corridor at a 3 percent deposit rate.
The monetary policy aligns with the broader economic goals of the fiscal year 2081/82, which aims for a target economic growth of 6 percent.
The central bank has set a 12.5 percent loan growth target for the fiscal year 2081/82, up from 11.5 percent last year. Inflation is expected to remain around 5 percent, and foreign exchange reserves should cover at least 7 months of imports. Efforts will also be made to address the slack in the construction sector, including extending the repayment period for loans to construction businesses until the end of Mangsir 2081.
For the fiscal year 2080/81, annual average inflation is expected to remain within desired limits. The Nepalese government’s budget forecasts a 5.5 percent inflation rate for the fiscal year 2081/82. The Indian Reserve Bank has projected a 4.5 percent inflation rate for 2024/25, maintaining its previous strict policies. Based on recent trends and projections, Nepal’s inflation is likely to hover around 5.0 percent for 2081/82. However, there is a risk of inflationary pressure from rising prices of essential goods like food and fuel due to external factors.
Inflation in the economy is currently within target limits, with improvements in the external sector and a notable increase in foreign exchange reserves. Although investment opportunities with banks and financial institutions are rising, loan growth has not met expectations. Despite lower interest rates, internal demand has not improved significantly, making it challenging to boost loan demand through monetary policy alone. Expanding monetary facilitation could risk financial stability if not accompanied by real sector improvements.
Remittances are strong, imports are down, and tourist arrivals are up, boosting foreign exchange reserves. There are opportunities to utilize these reserves for developing productive infrastructure, establishing industries, and promoting export-oriented activities. However, with imports decreasing and structural changes underway, the government’s revenue generation remains weak, putting pressure on public finances. As a result, public debt has nearly doubled over the past decade, reaching about 42.4 percent of GDP by Ashad end 2081 BS.
The newly released monetary policy is anticipated to play a significant role in influencing economic trends and financial activities throughout the fiscal year 2081/82. Stakeholders across various sectors will closely monitor its implementation and impact on the nation’s economic stability and growth prospects.
For full monetary policy, click on the link below:
