Nepal Rastra Bank (NRB) has released the new monetary policy, revealing inflation, for the upcoming fiscal year after reviewing the current year’s economic indicators.
Governor Dr. Bishwanath Paudel, while presenting the policy, said that the target was to keep inflation within 5%. So far, average consumer inflation has been recorded at 4.24%, and the year-on-year inflation for mid-June stands at 2.72%.
A major positive highlight is Nepal’s foreign currency reserve, which is strong enough to support over 14 months’ worth of imports—well above the target of 7 months set in the current policy.
Interest Rates Drop
To stabilize the economy, the NRB had set key interest rates as follows:
- Upper limit (Standing Liquidity Facility): 6.5%
- Lower limit (Standing Deposit Facility): 3.0%
- Policy rate: 5.0%
By the end of mid-June, the average interbank interest rate stood at 3.0%, showing a significant decrease from the previous year’s average of 3.62%. Similarly, the interest on 91-day treasury bills has also dropped slightly to 2.94%.
This decrease in short-term interest rates has helped bring down deposit and lending rates across banks:
- Commercial bank deposit rates fell from 6.17% to 4.29%
- Development banks: from 7.07% to 5.02%
- Finance companies: from 8.28% to 6.09%
Loan interest rates also dropped:
- Commercial banks: from 10.15% to 7.99%
- Development banks: from 11.63% to 9.40%
- Finance companies: from 12.85% to 10.22%
Strong Investment in Key Sectors
As of mid-May, commercial banks have invested:
- 13.9% of total loans (Rs. 647.85 billion) in agriculture
- 9% (Rs. 418.74 billion) in energy
- 10.8% (Rs. 503.29 billion) in small and medium enterprises (SMEs)
Development banks have directed 26.4% of their loans to agriculture, SMEs, energy, and tourism, while finance companies have invested 18.8% in the same areas.
Also, a portion of the loans from commercial and development banks has gone to support the underprivileged population:
- Commercial banks: Rs. 252.22 billion (5.6% of total loans)
- Development banks: Rs. 26.17 billion (7.1%)
- Finance companies: Rs. 5.5 billion (5.5%)
