July 22: Nepal Rastra Bank has unveiled the monetary policy for the current fiscal year with special focus on availing loan to the productive sector.

According to the monetary policy made public by the central bank on Friday, the government will gradually reduce the facilities given to sectors affected by the Covid-19 pandemic. NRB informed that the policy to provide refinancing facility will be reviewed so that only the productive sectors such as agriculture and those badly affected by the pandemic will be given refinancing facility.

Instead of encouraging credit flow, the monetary policy will focus on disbursement of loan to the productive sector, reads a draft of the policy made public by the central bank.

The monetary policy also focuses on increasing access to finance among small, cottage and middle-scale industries.

The monetary policy admits that the current account deficit and Balance of Payments (BoP) will remain under pressure for some more time despite increase in number of tourists and rise in number of Nepali migrant works visiting foreign countries for employment. According to the central bank, the current account and BoP deficits might push the economy to crisis. Such a situation has posed challenge in attaining high economic growth rate, reads the document.

The monetary policy states that the liquidity crisis and pressure on interest rate will remain until internal production is increased and there is improvement in foreign trade.  

The monetary policy has also focused on increasing digitalization of payment and transactions and increase access to finance.

Considering the pressure on foreign exchange reserves and inflation, the central bank has increased the bank rate by 1.5 percentage point and fixed it at 8.5 percent while the policy rate has been fixed at 7 percent and deposit collection rate at 5.5 percent.

The central bank will also manage Open Market Transaction Stabilization Fund as announced in the budget and implement it for effective management of liquidity crisis.

The central bank noted that the price hike of petroleum products and food in the international market due to the Russia-Ukraine war will pose a challenge in attaining the target of economic growth in the current fiscal year.