Refinance and bank rate reach 7 %

Kathmandu, Feb. 17

The Nepal Rastra Bank (NRB) has made significant adjustments in the rates of Standing Liquidity Facility (SLF), repo and deposit collection.

It has increased the bank rate – the interest rate charged by the central bank to domestic banks while lending money – from existing 5 per cent to 7 per cent.

In the mid-term review of the Monetary Policy for the Fiscal Year 2021/22 launched on Thursday, the central bank announced an increase of 2 per cent in the bank rate as a sign for the direction of the policy.

Likewise, it adjusted the SLF rate to 7 per cent, policy repo rate as the policy rate to 5.5 per cent, and deposit collection rate to 4 per cent. SLF is a monetary instrument to provide liquidity facility to the banks.

In the monetary policy, the NRB had set the SLF as the upper bound of the interest rate corridor at 5 per cent. Likewise, it had fixed repo rate at 3.5 per cent and deposit collection rate at 2 per cent.

However, the current Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) have remained unchanged.

Through the review of the Monetary Policy, the central bank also hiked the interest rates of the refinance, which is extended on the collateral of good loan, to 7 per cent for the banks and financial institutions (BFIs).

It pledges to implement a new system to mobilise loans to productive sectors at lower interest rates compared to other sectors from the last quarter of the current fiscal. A study will be conducted to measure the possibility of such provision before implementing it, Dr. Gunakar Bhatta, Spokesperson and Executive Director of the NRB, said while presenting the summary of the review via virtual press meet.

The NRB also said that it would review the risk weightage of import loan, real estate loan on land plotting, personal hire and purchase loan and margin lending. It would set a provision to allow the Infrastructure Development Bank to issue debentures.

It also informed about its plans to review the ceiling of the loans mobilised by the commercial banks to agriculture, energy, micro, cottage, small and medium enterprise sector. Other areas of possible review are the goods imports from India in credit facility, allowing NRNs to open bank accounts in convertible foreign currency and limit to the remittance companies’ money transfer inside the country.

Dr. Bhatta said that the refinance facility would now be focused to the areas that were severely affected by the COVID-19 pandemic and need further support in their revival.

The central bank also said that the resources would be ensured for the microfinance institutions so that their customers’ access to finance couldn’t be hindered.

Published in The Rising Nepal daily on 18 February 2022.