-- Policy Rate reduced to 5 percent, Bank Rate to 6.5 percent

-- Credit Expansion Target of 12.5 percent for FY 2024/25

-- Existing Maximum Margin Loan Limit for Institutional Investors Abolished

-- Asset Management Company to be Established

-- Flexible Approach for Construction Businesses

NewBiz Report

KATHMANDU, July 26 

Nepal Rastra Bank (NRB) has reduced the policy rate for the current fiscal year. While announcing the new monetary policy on Friday, Governor Maha Prasad Adhikari said that the policy rate has been reduced from 5.5 percent to 5 percent. Similarly, the bank rate has been reduced from 7 percent to 6.5 percent.

The central bankhas set a credit expansion target of 12.5 percent for the current fiscal year. This is an increase from last year's target of 11 percent, of which only half was achieved. Unveiling the Monetary Policy 2024/25, the central bank has lowered the upper limit of the interest rate corridor from 7 percent to 6.5 percent. This adjustment is expected to result in a reduction in interest rates.

The central bank has introduced flexibility in margin loans by abolishing the Rs 200million limit for the institutional investors. Governor Maha Prasad Adhikari, during the announcement of the new monetary policy, stated that the existing maximum loan limit of Rs 200 million for margin lending to institutional investors primarily focused on capital market investments will be abolished.Top of Form

The central bank has announced the establishment of an asset management company. Governor Adhikari stated that a draft of the Asset Management Act will be prepared and submitted to the government.

The new company will focus on managing non-banking assets and non-performing assets of banks and financial institutions. In response to the increase in bad loans, the central bank has advocated for this new structure to better address these challenges. The Asset Management Company (AMC) aims to manage distressed assets and mitigate the impact of bad loans on the banking sector.

Nepal Rastra Bank (NRB) has introduced a more flexible approach for the construction sector. In its latest monetary policy announcement on Friday, NRB Governor Maha Prasad Adhikari stated that the interest payment period for loans extended to construction businesses will be extended until mid-December 2024.

Under the new policy, construction businesses will not be blacklisted solely due to check dishonor, unless specified otherwise by credit notification provisions. Additionally, measures will be implemented to ensure that the banking activities of other joint venture (JV) partners are not disrupted by the blacklisting of any single JV partner. Should the Government of Nepal extend the construction period, arrangements will be made to renew the guarantees provided by banks and financial institutions.

Nepal Rastra Bank will begin developing the design characteristics of a wholesale Central Bank Digital Currency (CBDC), drawing from studies of central bank electronic currencies.Governor Adhikari also announced that preparations will be made for the necessary infrastructure and institutional framework to fully operationalize the National Payment Switch.