KATHMANDU: Nepal Rastra Bank (NRB) has released the first quarterly review of the monetary policy for the current fiscal year. In the review, the central bank has reduced the policy rate from 4.50% to 4.25%.
Similarly, the upper limit of the corridor, the Standing Liquidity Facility (SLF) rate, has been lowered from 6% to 5.75%, while the lower limit, the Standing Deposit Facility (SDF) rate, remains unchanged at 2.75%. The cut in the policy rate is expected to put pressure on commercial banks to reduce lending rates further.
NRB has also doubled the existing limit for personal overdraft (OD) loans provided by banks and financial institutions from Rs 5 million to Rs 10 million. This move comes in response to adequate liquidity in banks and a lower-than-expected demand for loans.
The central bank has increased the maximum loan limit that microfinance institutions can provide against collateral from Rs 700,000 to Rs 1.5 million. It has also allowed borrowers facing repayment difficulties to request adjustments to their repayment schedules. NRB noted that the measure aims to make credit more accessible, especially as liquidity remains high while loan disbursement is low.
Additionally, NRB has removed the existing requirement for banks and financial institutions to keep a 1% interest rate gap between institutional and personal fixed deposits. Previously, to encourage personal deposits during low liquidity periods, institutional fixed deposit rates had to be at least 1% lower than personal fixed deposits.
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