Monetary Policy 2016
Monetary Policy 2016
Monetary Policy 2016
Monetary policy 2016/17 was announced on July 14 2016 under the backdrop of southern border
disturbances and post earthquake reconstruction. It is made compatible with domestic and
international economic outlook as well as objectives and priorities of GoN Budget 2016/17. It aims to
facilitate the implementation of GoN budget to achieve 6.5% of economic growth and 7.5% of
inflation.
NRB publishes the overall tight stance to balance the impact of larger size of the Government budget
(2016/17) on macroeconomic stability. Monetary policy will facilitate to achieve targeted economic
growth of the government and aims at maintaining macroeconomic stability. Other major stances are:
1. Inflation- as a primary objective Monetary policy aims to contain CPI inflation at 7.5% (price
stability)
2. Foreign exchange reserve- aims to cover imports of goods and services for at least 8 months
(External sector stability)
3. Growth of broad money M2 at 17 %
4. Domestic and private credit growth at 25% and 20% respectively.
5. Necessary liquidity provided to achieve 6.5% of economic growth and currency peg as a nominal
anchor of monetary policy remain unchanged.
Introduction of interest rate corridor (IRC) - a mechanism that guide short-term interest rate. This
keeps interest rate within certain band. Two week repo rate will be taken as policy rate.
Cash reserve ratio: cash reserve for class A, B and C class bank is 6%, 5%, and 4% respectively.
SLR: SLR for class A, B, and C bank is 12%, 9%, and 8% respectively.
Bank rate is unchanged at 7 %
Credit to earthquake affected people at 2 % and refinance for such loan is at zero percent interest.
Introduction of liquidity monitoring and forecasting framework (LMFF) in order to measure and forecast
excess liquidity of bank and financial institution.
Credit type Refinance rate %
Earthquake victims 0 (for earthquake victims)
General refinance 4 (for commercial farming fruits, vegetables, hydropower and specified
productive sectors)
Special refinance 1 (equivalent to export amt for ostrich/cardamom farming & beekeeping
Export LIBOR+0.25 encourage export
Percentage of total credit to the specified productive sector is 20 percent for commercial bank and
that is of 15 percent and 10 percent to development bank and finance companies respectively.
Major Highlights
Criticism
Force lending provision to certain area may have negative impact on banking sector. So NRB should
try to policy stability through innovative use of monetary instrument.