NRB sets 7 per cent inflation target; aims to increase economic growth

Kathmandu / July 22: Nepal Rastra Bank (NRB) has set the inflation rate of 7 per cent for the fiscal year (FY) 2022/023.

The NRB said so while unveiling the monetary policy for the FY 2022/23 on Friday. The NRB target to limit inflation to 7 per cent is lower than the actual inflation of the past FY 8.56% but higher than the target of the last year, 6.5%.

The monetary policy targets to expand private sector credit by 12.6 per cent and the broad money supply by 12 per cent. It has increased the cash reserve ratio (CRR) to 4 per cent from 3 per cent in the previous fiscal year.

According to the monetary policy, the margin loan policy has been changed. Now, individual and institutional banks and financial institutions can provide margin loans up to Rs 120 million.

Through the monetary policy for the fiscal year 2022/23, the central bank has raised the mandatory limit of cash reserve ratio (CRR) and Statutory Liquidity Ratio (SLR), which are among the main tools of the apex monetary regulator to reduce the bank’s credit supply in the economy. For the next fiscal year, the CRR has been increased to four percent from existing three percent.

Likewise, the SLR has been raised to 12 percent from the existing 10 percent for commercial banks. The limit of SLR for development banks and finance companies has been raised to 10 percent from earlier 8 percent and 7 percent, respectively.

As an additional measure to check excessive money supply, NRB has increased the bank rate by 1.5 percent to 8.5 percent. Likewise, the maturity time of the standing liquidity facility has been reduced to five days from seven days. The central bank has also targeted to reduce the threshold of private sector loans to 12.6 percent at maximum from 19 percent.

Speaking at a virtual press meet, NRB’s Executive Director Prakash Shrestha said the central bank has adopted alternative measures despite controlling credit expansion in order to support the government targeted economic growth. “A lesson was learned even last year that the excess credit expansion may not help achieve high economic growth,” Shrestha said.

According to Shrestha, NRB will be imposing differentiated interest rates for the trading and production sector, giving more respite to production businesses than import oriented trading. “In addition the risk of possible liquidity shortage caused due to high CRR will be addressed by the measures like continuity to refinance facility, provision of allowing debentures in credit-deposit ratio and deferral of implementation of counter cyclical buffer,” he added.

The central bank has also extended the deadline of maintaining a mandatory CD Ratio of 90 percent by the banks to the end of fiscal year 2022/23. Earlier, the banks were asked to maintain this regulatory measure as of this mid-July, which the banks have been blaming as the main cause behind the liquidity crunch.