Central bank implements measures to address economic slowdown

KATHMANDU: In an effort to combat the ongoing economic slowdown in the country, Nepal Rastra Bank (NRB) has announced a reduction in the bank rate by one percent.

During the unveiling of the third quarter review of the monetary policy for 2022/23, the NRB adopted a more lenient approach to lower market interest rates and increase money supply. The central bank has decreased the bank rate from 8.5 percent to 7.5 percent.

The decision to reduce the bank rate comes at a time when the country’s economy has been grappling with a recession, with high interest rates being one of the major contributing factors.

The NRB believes that the revised bank rate will help alleviate the burden of high interest rates on both deposits and loans.

Traders have observed a significant decline in the consumption of everyday essentials, as well as transactions related to various goods and services such as electrical appliances, automobiles, restaurants, and real estate businesses.

The National Statistics Office (NSO) recently released a report indicating a dismal performance of the Nepali economy in the current fiscal year.

The economy registered a meager growth rate of 0.8 percent in the first quarter (mid-July to mid-October) and a negative growth rate of 1.1 percent in the second quarter (mid-October to mid-January). The NSO projects that the country’s economic growth rate for the current fiscal year will be only 2.16 percent, nearly four times lower than the government’s target.

In light of the worsening economic conditions, the NRB has also introduced measures to allow banks to expand their credit capacity.

As part of the revised policy, banks will be permitted to consider the government bonds they hold as part of the credit-deposit (CD) ratio until mid-July 2024. Currently, banks are required to maintain a threshold of 90 percent of the deposit base when issuing loans to clients.

Furthermore, the NRB has announced refinancing facilities for businesses that have experienced negative growth for two consecutive quarters, with the refinancing amount limit set at Rs 6 billion.

Additionally, businesses in the hotel and restaurant, livestock farming, and construction sectors have been granted the opportunity to restructure and reschedule loans up to Rs 50 million until mid-July 2024.

These measures by the NRB aim to provide much-needed relief to businesses and stimulate economic growth in Nepal amidst challenging circumstances.