News Summary
Review Completed.
- The Nepal Rastra Bank is preparing to review the arrangement for providing permanent deposit facilities to banks and financial institutions to make the interest rate corridor more effective.
- Although inflation remains below the bank’s target, the central bank has warned that global geopolitical tensions could pose inflationary risks.
- According to the third quarterly review of the current fiscal year 2082/83, despite excess liquidity in the financial system, collective vigilance by banks has maintained financial stability amid managed macroeconomic indicators.
May 15, Kathmandu – The Nepal Rastra Bank is set to review the provision that offers permanent deposit facilities to banks and financial institutions, aiming to enhance the effectiveness of the interest rate corridor.
This move was disclosed in the third quarterly monetary policy review report of the current fiscal year 2082/83, where the central bank announced plans for this policy adjustment.
The central bank reported that it has maintained a flexible monetary policy since the start of the fiscal year, considering low economic growth projections while aiming to keep foreign exchange reserves and inflation within targeted stability.
Existing regulations regarding the interest rate corridor, bank rates, mandatory cash reserves, and statutory liquidity ratios have been kept unchanged, said the Nepal Rastra Bank.
The ongoing monetary policy for the current fiscal year is expected to support the expansion of economic activities while maintaining price stability, external sector strength, and financial sector resilience.
Inflation below Bank’s Target
According to the Nepal Rastra Bank, inflation currently remains below its target. However, it has cautioned that inflationary pressures may rise due to geopolitical tensions worldwide.
Since the outbreak of conflict in West Asia, prices of petroleum products have surged, and the supply chains for raw materials and some consumer goods have been disrupted. During this period, petrol prices in Nepal increased by 35 percent and diesel by 58 percent.
The central bank described the external sector of the economy as stable. Remittance inflows have notably increased, and the current account, secondary savings, and foreign exchange reserves have all recorded growth.
Nearly 40 percent of remittances to Nepal originate from West Asia, and ongoing regional tensions pose risks of increased trade deficits due to rising remittance and imported goods prices. This could also pressure foreign currency reserves, the central bank warned.
The level of non-performing loans in banks and financial institutions has generally increased. However, the central bank expects improvement in these loans as economic activity picks up.
As of the end of Chaitra 2082, the primary capital and capital fund to risk-weighted asset ratios of banks and financial institutions remained within regulatory standards, ensuring overall financial stability, the Nepal Rastra Bank reported. The financial system has experienced excess liquidity for the past three years.
The review report noted that banks have remained vigilant in managing the potential impacts of prolonged excess liquidity on macroeconomic indicators.
