Year 15 Issue I October 2020 Volume 41

NRB Releases Monetary Policy for FY

2020-21

Nepal Rastra Bank economic development. Similarly, policy has

(NRB) has released the Similarly, the monetary aimed to maintain foreign
Monetary Policy for FY policy stipulates liquidity exchange reserves sufficient
2020-21 on July 17, 2020. management, integration and for import of merchandise
Governor Mr. Maha consolidation of Banks and goods and services for
Prasad Adhikari unveiled Financial Institutions (BFIs), at least seven months in
this Monetary Policy enhancement of financial current fiscal year to ensure
live via Nepal Television access and quality of services the external sector stability.
from Governor's Office at and promotion of electronic Monetary policy envisioned
Baluwatar, Kathmandu. payment business focusing to attain the targeted
Monetary policy has on the pressure on price and economic growth keeping
taken the policy of supporting external sector stability. economic recovery in
the economic growth target Monetary policy has priority. In the current Fiscal
set by the Government while aimed to contain inflation Year, the monetary policy
maintaining macroeconomic within 7.0 percent in order has projected the growth
stability and mobilizing to maintain price stability of broad money (M2) and
financial resources to and to achieve economic private sector credit has
expand economic activities growth of 7.0 percent in been projected at 18 percent
generate employment and line with the target of the and 20 percent respectively.
enhancing sustainable government budget. It has also focused
 NRB News

The ADBL will be

allowed to issue agricultural
bond to ensure availability
of long term financing in
agriculture sector. It has
been stated that 'Kisan
Credit Card' will be
provided through the ADBL,
to provide agricultural
information along with
financial means to the
farmers.
The monetary policy
stipulates that commercial
banks should invest at least
10 percent of their total loan
on minimizing the volatility been kept unchanged at 5.0 in the energy sector by mid-
of short term interest rate percent. July 2024 to support the
through more effective Policy has focused target of generating 5,000
implementation of Interest on expanding credit on MW of hydropower during
Rate Corridor (IRC). In this agriculture, energy, tourism, the 15th Plan for achieve
regard, the IRC has been and cottage as well as small self reliance in energy.
kept unchanged Standing and medium enterprises so The policy also states that
Liquidity Facility (SLF) at as to revive the economy arrangements will be made
5.0 percent while the repo affected by Covid-19. In to issue 'energy bonds'
rate at the lower limit has line with this, provision through the commercial
been reduced from 2.0 to 1.0 for priority sector lending banks.
percent. Similarly, the repo has been revised. Access The policy states that
rate has been reduced from to refinancing facilities concessional credit program
3.5 to 3.0 percent. has been decentralized. will be further simplified to
Monetary policy has Concessional credit program promote output, generate
announced the provision has been restructured by employment and develop
of long-term repo facility widening the coverage. entrepreneurship to mitigate
to provide additional A provision has the impact of Covid-19.
resources for the recovery been made for commercial Such loans will be provided
of the economy affected by banks to invest at least at an annual interest rate of
Covid-19. Cash Reserve 15 percent of their total 5.0 percent.
Ratio (CRR) of three percent credit in agriculture sector It is also stated that
required by BFIs has been by mid-July 2023 so as to each commercial bank
maintained. Similarly, the ensure food security and will be required to extend
Statutory Liquidity Ratio generate employment while at least 500 concessional
(SLR) to be maintained becoming self-reliant on loans or minimum 10 loans
by 'A', 'B' and 'C' class agriculture production. per branch, whichever is
institutions has been kept The monetary policy higher aimed at maintaining
unchanged at 10, 8.0 and states that the Agriculture provincial balance. Similarly,
7.0 percent respectively. Development Bank Limited each national Development
Bank rate, used for the (ADBL) will be promoted as Bank will be required to
purpose of lender of the last the 'lead bank' to facilitate provide at least 300 such
resort (LOLR) facility, has credit in agriculture sector. loans or minimum 5 loans
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NRB News

per branch, whichever is percent. Likewise, MSME are hard-hit by the Covid-19.
higher. refinance will be provided As per the policy, a provision
The monetary policy at 2.0 percent and general will be made to provide loan
has made provision of refinance will be provided at from the BFIs at 5.0 percent
refinance facilities, revised 3 percent. Borrowers have to for the operation and
with making the provision pay 3.0 percent, 5.0 percent continuation of Covid-19
of extending refinance and 5.0 percent interest rates affected businesses including
facilities up to five times respectively on these loans. tourism and cottage, small
of the available fund so It is mentioned and medium enterprises
as to promote economic in the policy that under for payment of salaries to
activities thereby providing the provision of lump workers and employees
concessional credit and sum refinance facilities, of such sectors, and for
enhancing access to credit the maximum limit per providing opportunities to
for Covid-19 affected borrower will be Rs.1.5 develop entrepreneurship
professions, enterprises and million for MSME refinance, to those who have lost jobs
businesses. Rs.50 million for special and in the hard-hit sectors. The
Out of total refinance general refinance, and Rs.200 resources for this facility
facilitates, up to 20 percent million for general refinance will be managed from the
can be extended based provided on the basis of Rs. 50 billion fund that is to
on customer evaluation customer evaluation. be established as mentioned
with up to 70 percent In addition, the in the budget speech for FY
through commercial banks, monetary policy also 2020/21.
development banks and mentioned that a provision The policy stated that
finance companies and up to will be made to provide Credit to Deposit cum Core
10 percent through the MFIs 20 percent additional loan Capital (CCD Ratio) will be
on lump sum basis. based on the working capital increased from 80 percent
As per the monetary limit of mid-April 2020. to 85 percent to increase
policy, special refinance BFIs can provide such loans resource availability to
for the specified sectors based on borrower's need BFIs and thereby revive
including export and and feasibility of project/ the economy affected by
sick industry will be business so as to facilitate the Covid-19. The deadline for
provided to the BFIs at 1.0 continuation of business that commercial banks to issue
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 NRB News

Incentives for Mergers and Acquisition

In order to strengthen the capital base of Banks and Financial Institutions (BFIs) and
thereby strengthening their risk-absorption capacity, the monetary policy has given priority
to the merger and acquisition process of commercial banks. Commercial banks will be given
following additional incentives till mid-July 2022 if they commence joint operation following
merger and acquisition process by mid-July 2021:
• CRR and SLR to be waived by 0.5 percentage point and 1.0 percentage point respectively.
• Limit on institutional fixed deposit to be increased by 10 percentage points.
• Limit on individual institution's deposit to be increased by 5 percentage points.
• The existing provision of cooling period of six months will not be applicable for the
members of board of directors and senior officers while joining other institutions licensed
by this Bank.
Moreover, coordination will be made with concerned institutions for the adjustment of
bank-wise institutional deposit ceiling.
bonds of at least 25 percent also been cancelled. MFIs local levels.
of their paid-up capital has operating at provincial level Monetary policy has
been extended to mid-July will have to sell, close and announced that settlement
of 2022. relocate the existing branch of financial transactions
Relaxation has been offices, which are outside the through digital means will
provided in the provision of province of their operation be encouraged following the
capital adequacy to provide by mid-July 2021. Earlier,
spirit of the Digital Nepal
additional financial facilities such deadline was mid-July
Framework implemented
to the COVID affected 2020.
by the GoN, which aims to
industries/businesses. The credit limit promote sound and secure
Under this, the provision for business projects electronic payment system
of counter cyclic buffer has with acceptable collateral in order to minimize the
been postponed till mid- provided to the deprived cash transactions. National
July of 2021. For the same and low-income individuals, Payment Switch will be
period, the monetary policy firms or group for agriculture,
established to facilitate the
has announced to reduce micro enterprises and
payment system further in
the existing maximum risk businesses will be extended
order to maintain records
weight for operating risk, to Rs.1.5 million from
market risk and overall risk existing Rs. 0.7 million. The of all electronic transactions
from 5 percent, 3 percent monetary policy directed conducted in Nepal. The
and 5 percent to 3 percent, that the maximum interest policy states that a national
1 percent and 3 percent rate on MFIs lending will be payment switch will be set
respectively. It is mentioned fixed at 15 percent. up to further facilitate the
that the guidelines on payment system.
As per the policy,
stress testing of BFIs will be MFIs will be required to As per the policy,
modified and made as per establish new branches new license to Payment
the international standards. only in those wards of local System Operator (PSO) and
The licenses of levels where there MFIs Payment Service Provider
microfinance institutions nonexistent. It is expected (PSP) has been suspended
have been suspended and that this provision will except in the case of those
licensing for new MFIs support in extending the which have been provided
that are in the pipeline has MFIs network in all wards of Letter of Intent (LOI).
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NRB News

Unveiled Refinance Procedure, 2020

Nepal Rastra special and 3) general. of the amount that can be
Bank (NRB) has issued Different interest rates have provided. The procedure
'Refinancing Procedure, been fixed for all the three covers various procedures
2020' with the objective of refinancing categories in for providing refinancing.
facilitating the revival of the procedure as in attached BFIs that have been
industry, profession and table. declared problematic, have
business by addressing the The lump sum not completed one year of
impact of Covid-19 on the refinancing period will release from the problem,
economy. NRB has approved be a maximum of one have not met the minimum
the procedure and brought year and no such loan will capital and paid-up capital
it into implementation on be renewed. In case of and have not been able to
July 9, 2020. refinancing provided by the avail refinancing facility
In order to address customer according to the from time to time will
the impact of Covid-19, a debtor, the loan period will be ineligible to apply for
limit has been set for NRB be one year for the debtor of refinancing. The procedure
to provide refinancing up the area specified by NRB as also determines the list of
to a maximum of five times highly affected by Covid-19. eligible and ineligible loans
the available resource. The In case of moderate and for refinancing. 
source of the fund to bear low affected, this period
the risk of refinancing (1) will be six months. As per
amount of development the Nepal Rastra Bank Act,
fund in NRB (2) the 2002, it is mentioned in the
amount of other funds of working procedure that
NRB specified by the Board such loan can be renewed.
of Directors (3) the amount A maximum limit of
of fund received from the Rs.50 million has been set for
donor partners (4) and the the recipient refinancing to
amount approved by the be provided to BFIs by NRB.
Government of Nepal and Similarly, the borrower's
(5) the amount provided by limit of refinancing
the government. will be Rs. 200 million,
According to the while the refinancing
procedure, refinancing has amount provided to the
been classified into three microfinance institution
categories: 1) MSMEs, 2) will not exceed 10 percent
Ref inancing Interest R ate
Types of Refinance Interest rate charged by NRB Interest rates charged by BFIs
MSMEs refinancing 2.0 percent 5.0 percent
Special Refinancing * 1.0 percent 3.0 percent
General Refinancing 3.0 percent 5.0 percent
*In case of special refinancing, the same rate will be applicable in case a separate refinancing rate is
fixed for any special loan.
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 NRB News

Interaction with CEOs of Commercial Banks

Nepal Rastra Bank of the banking sector is
organized a virtual 15 percent and the non-
interaction program with performing loan ratio is 1.8
the Chief Executive Officers percent.
(CEOs) of Banks and He urged the CEOs
Financial Institutions (BFIs) of BFIs not to consider the
on contemporary issues of liquidity, which has been
banking and financial sector around Rs. two trillion
on September 7, 2020. The for the past few months,
program was organized by as 'excess liquidity'. He
the Banks and Financial said, “As BFIs are business
Institutions Regulation entities, it is natural for
Department via webinar them to focus on profit.
with the participation of However, there is no need
the CEOs of 'A', 'B' and 'C' to be more profit-oriented
now. Current situation is
licensed institutions.
to survive business and not
Addressing the of Rs. 282 billion and foreign to be more profit oriented.
webinar, Governor Mr. Maha exchange reserves above Therefore, excess liquidity of
Prasad Adhikari expressed Rs.14 trillion would help BFI's shall be considered as a
that the overall economic in expanding the country's comfortable situation rather
and financial indicators of economic activities. than a problem.”
the country were positive Governor Adhikari Indicating that
even during the transition informed that the financial speculative groups could
period of Covid-19. He sector has remained stable take advantage from the
informed that stability in as the CCD Ratio has been liquidity situation and
exports, control of imports, maintained 72 percent, misuse loans, Governor
significant improvement which has provided adequate Mr. Adhikari warned BFIs
in current account deficit, means for investment with not to be distracted by this
balance of payments surplus the capital adequacy ratio situation. He was of the view
that excess liquidity should
be taken as an 'indicator of
ease'.
Stating that there
have been complain ed about
unnatural and unhealthy
competition between BFIs
in recent times, Governor
Mr. Adhikari also instructed
them not to take such
activities that could endanger
the financial system. "Let
Continued on ... page 8
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NRB News

The FIU Nepal – A brief Discussion

Existing Set Up The roles,
Globally, the concept of responsibilities, functions
Financial Information Units and power of the Unit Dirgha Bahadur Rawal
are defined by the Assets Director
(FIU) has been evolved as Nepal Rastra Bank
Laundering Prevention Act
an intelligence unit to fight of land management and
2008 (ALPA) and Rules
against money laundering records, Office of the company
2016. ALPA has created a
(ML), terrorist financing (TF) Registrar (OCR) and
mechanism to report SAR/
and proliferation financing Nepal Bar Councils. These
STR/TTR to the Unit. The
(PF). Most of the FIUs have regulatory agencies issue
reporting institutions are
a common primary function regulations to REs regarding
known as Reporting Entities
of receiving, analyzing, reporting requirements.
(REs). REs are classified into
processing and dissemination The Unit analyzes
two broad categories viz; 1)
of the information related to received reports and
Financial Institutions; and
the Anti Money Laundering disseminates the information
2) Designated Nonfinancial
(AML) and combating business and professions to the Law Enforcement
the financing of terrorism (DNFBPs). The Financial Agencies (LEAs) viz;
(CFT). In line with the institutions are Banks and Department of Money
global practices, FIU Nepal Financial Institutions, Non- Laundering (DMLI),
(hereinafterUnit) is also Bank Financial Institutions, Commission for the
an administrative type of Insurance Companies, investigation of Abuse of
institution whose primary Cooperatives, Securities Authority (CIAA), Nepal
function is to receive, dealers and brokers etc. Police, Department of
analyze and disseminate the Similarly, DNFBPs include Revenue Investigation,
Threshold Transaction Report Casinos, Real estate agents, IRD, Custom Department
(TTR), Suspicious Activities Dealers in precious metals etc. These LEAs further
Report (SAR) and Suspicious and dealers in precious investigate and forward the
Transaction Reports (STR). stones, Lawyers, Notaries, case to the prosecutors for
Moreover, it works as a Other independent judicial proceedings.
secretariat of National legal professionals and Nepal has also kept
Coordination Committee accountants, Trust and its best efforts to developa
(NCC) and a focal point for Company service providers. comprehensive and consistent
AML/CFT. The Unit also Each of these reporting framework to combat ML
cooperates domestically and entities has its own regulatory and TFas outlined in the
internationally on sharing the agency viz; Nepal Rastra Bank Financial Action Task Force
information regarding AML/ (NRB), SEBON, Insurance (FATF) recommendations.
CFT. Established in 2008, Board (IB), Department of As a result, aforementioned
the Unit is stepping towards Cooperatives (DoC), Inland legal and institutional
becoming an efficient and Revenued Department mechanisms have been
effective institution as (IRD), Ministry of Culture, developed so far. The FATF
envisaged by the international Tourism and Civil Aviation recommendation no. 29
standards. (MOCTCA), Department emphasizes the establishment
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 NRB News

of FIU that serves as a As discussed, the integrate all information

national center for the receipt Unit is an integral part of in one single database.
and analysis of the reports the AML/CFT regime in • to enhance analytical
and other information. The Nepal. Combating ML/TF
capacity ofhuman
recommendation further functions are interrelated
resources.
prescribes that the FIU and interdependent among
should be able to receive all stakeholders and other • to develop awareness
additional information from competent authorities. on AML/CFT and its
REs as well as LEAs. Therefore, the effectiveness preventive mechanism.
Effectiveness ofthe Unitis commingled • to implement the action
The ALPA 2008 and with the effectiveness of all plans developed by
Rules 2016 have given the concerned authorities. the National Strategy
legal power tothe Unit. In The Unit is guided by the
and National Risk
addition to the legal powers, best practices to demonstrate
highest level of professional Assessment(NRA) 2020.
NRB board has also approved
and ethical standard as well • to enhance cooperation
FIU by rules 2020 to ensure
functional/operational as to maintain confidentiality. and coordination among
independence and autonomy Challenges all the stakeholders.
as well as resource availability. Following are Finally, Covid 19 has
Legislations and regulations somemajor challengesto the become a major challengein
have given enormous room Unit: the list. Dimensions of the
for the Unit to exercise the • to perform efficiently risks and challenges have
best practices for achieving under Covid-19
also been changing rapidly.
its objectives. There is no any situation.
instance of undue influence Therefore, our new challenge
• to integrate all the REs
or interference of any kind into the goAML system. is to manage all these issues
which might compromise its • to have unique national even in the rapidly changing
operational independence. identity of all citizens and context. 

Interaction with CEOs ............................

no one think that a tiger Executive Director of Banks Bankers Association and
that attacks others, will save and Financial Institutions Mr. Saroj Kaji Tuladhar
me." activities that endanger Regulation Department; President of Nepal Financial
the financial system cannot said that the unhealthy Institutions Association; had
be tolerated by regulator. competition among the also expressed their views
Stating that BFIs have banks has been increasing in on contemporary banking
been reluctant to apply for recent times, adding to the
issues.
refinancing, Governor Mr. challenge of promoting the
Deputy Governors
Adhikari urged the CEOs to interests of depositors.
be responsible in utilizing Mr. Bhuwan Kumar Mr. Chinta Mani Siwakoti
the policy provisions issued Dahal, President of Nepal and Mr. Shiba Raj Shrestha
by NRB. Bankers' Association; Mr. and Executive Directors of
On the occasion, Govinda Prasad Dhakal, various departments had also
Mr. Dev Kumar Dhakal, President of Development participated in the webinar. 
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NRB News

Macroeconomic Impact of COVID-19

Pandemic and Policy Response
1. Background aggregate demand depends Narayan Prasad Pokhrel
The general consensus is that positively on productivity Director (Act.)
the Covid-19 outbreak will growth. The reason is that Nepal Rastra Bank
cause a negative supply shock faster productivity growth 3. The supply-demand
to the world economy, by boosts agents’ expectations doom loop
forcing factories to shut down of future income, inducing In reality, productivity
and disrupting global supply them to spend more at growth is at least in part
chains. This simple model present. This effect gives rise driven by firms’ investment.
shows that the spread of the to a positive relationship In turn, investment decisions
virus causes a demand-driven between productivity growth depend on aggregate demand
slump, gives rise to a supply- and employment. – when demand is strong, the
demand doom loop, and Assume that pendemic return from investment tends
opens the door to stagnation causes a persistent drop to be high; weak aggregate
traps induced by pessimistic in productivity growth; demand, conversely,
animal spirits. Besides the the result is lower demand depresses firms’ incentives
impact on public health of and the emergence of to invest. This effect gives
this Covid-19 outbreak, is involuntary unemployment. rise to a positive relationship
likely to have significant The lesson is that, through between productivity growth
economic consequences. its negative impact on and aggregate demand.
But how deep and persistent agents’ expectations of future Let's again assume that the
will this supply disruption productivity growth, this Covid-19 spread generates
be? Will aggregate demand will induce a demand-driven a persistent negative supply
be affected? How should recession. shock, interesting is that
monetary policy respond? Now suppose that the central now a supply-demand doom
What about fiscal policy? In bank reacts by lowering the loop takes place. As before,
this regard, these questions policy rate. This intervention with an initial negative
are discussed through the lens sustains aggregate demand, supply shock, this will
of a simple macroeconomic by inducing agents to depress aggregate demand.
model. Focus has been given increase borrowing and But now, lower demand
on the possibility that the spending. This corresponds induces firms to curtail their
supply disruption caused by to a rightward shift of investment, which generates
Covid-19 will be severe and the demand curve. If the an endogenous drop in
persistent. monetary stimulus is strong productivity growth. Lower
2. Impact on Aggregate enough, full employment productivity growth, in turn,
Demand is restored. The model thus causes a further curtailing
As a stripped down version of lends support to the idea that demand, which again lowers
the standard New Keynesian central banks might need productivity growth. This
model, aggregate demand to respond to the Covid-19 vicious spiral, or supply-
shifts downward, as the outbreak by easing monetary demand doom loop, amplifies
tradition, employment and policy. Of course, this policy the impact of the initial
output are determined by might conflict with the zero supply shock on employment
aggregate demand. In turn, lower bound on interest rates. and productivity growth.
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 NRB News

Monetary expansions have a Analysis suggests that the rate declined by more
multiplier effect on demand supply disruption caused by than 6 percentage points
and employment. Suppose the Covid-19 pandemic, if as compared to the target,
that the central bank eases it turns out to be persistent, and nearly by 5 percentage
monetary policy to increase might cause a severe slump points as compared to the
aggregate demand. Higher driven by weak aggregate average growth rate of past
demand, in turn, induces demand. In this case, drastic three years. The effect of the
firms to increase investment. policy interventions – both outbreak of the disease and
This sustains consumers’ monetary and fiscal – might subsequent lockdown, have
expectations of future be needed to prevent the adversely affected the growth
income, leading to a further negative supply shock in real sectors. The economic
rise in demand. Monetary triggered by the Covid-19 growth is further expected to
easing can thus reverse the spread from severely slow down since agricultural
supply-demand doom loop. affecting employment and and industrial production
4. Animal spirits and productivity. will suffer due to supply
stagnation traps 5. Impact on global and disruptions and reduction in
Once the zero lower bound national level domestic demand. Likewise,
binds, the impact of shifts Covid-19 has caused an service sector will also be
in demand on output and economic shock three times affected due to slowdown in
employment are magnified, worse than the 2008 financial the tourist arrivals. Industrial
because conventional crisis. Severe downturn production contracted more
monetary policy can no in global economy, viz. than 70 percent and one
longer act as a shock estimated to be 4.4 percent fourth of the employment
absorber. In fact, the demand GDP contraction globally, has been reduced due to
curve now exhibits a kink. 6 years reversal in human pandemic.
The horizontal portion of the development, 4 billion full 6. Relief measures floated
demand curve captures cases time job losses and affecting by Government of Nepal
in which monetary policy is 1.6 billion labors globally in Government has made
constrained by the zero lower informal sector. The crisis arrangement to spend/
bound and the economy threatens to leave long lasting transfer from annual budget,
experiences a liquidity trap. scars on the global economy, federal and sub national
Once again, suppose that such as weaker productivity government’s corona control
the Covid-19 reduces growth, heavier debt burdens, fund, disaster management
productivity growth, two heightened financial burdens and Prime minister natural
equilibria are possible due and higher poverty and disaster relief fund for
to aggregate demand kick inequality. Pandemic could controlling Covid-19
off, nothing fundamental push additional 114 million pandemic. Tax clearance
determines which people into extreme poverty, deadline has also been
equilibrium materializes. defined as living on less than extended by the government.
Indeed, agents can coordinate USD 1.90 a day. Relief package includes
their expectations on either Preliminary estimates of a 25 percent discount on
of the two equilibria. This Nepalese GDP growth electricity for consumers
means that pessimistic plummeted to 2.3 percent who use more than 150 units
animal spirits can push the as against the target of 8.5 each month. Penalty was
economy into a stagnation percent in the FY 2019/20. waivered if utility bills and
trap. This implies that growth tax payments have not been
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NRB News

cleared till mid-April. The from daily wage earners, and affected by the pandemic, (iv)
government has also asked private schools are urged Announced that banks will
Internet Service Providers to not to charge one-month fee defer loan repayments due
extend a 25 percent discount from students. in April and May until mid-
to customers on data and The Covid-19 Control July, (v) For working capital
voice call packages. High-level Task Force has loans, banks will extend
Among the other social also warned that the Home the repayment schedule of
safety net for those who Ministry will enforce a law to the amount due during the
have suffered loss of daily imprison those who return lockdown up to 60 days, (vi)
wages, the government also from abroad and who have Businesses in affected sectors,
not stayed in quarantine if borrowers show the needs,
announced a 10 percent
can qualify for additional
discount on rice, flour, for 14 days. The penalty for
working capital loans of up
dal, salt, sugar and oil non-compliance of this is up
to 10 percent of the approved
supplies from Nepal Food to six months in jail. There
amount of their existing
Corporation and Salt Trading are hundreds of Nepalese
working capital loans, to
Corporation. workers returning from be repaid within a year at
The government will start India who are stranded on most, (vii) Directed banks
making up a list of those Nepal’s southern and western to apply lower interest rates,
eligible for food aid, and borders after India also up to 2 percentage points,
beneficiaries have to obtain enforced a lockdown on 19 when calculating the interest
identity card from their March, 2020. due for the period of mid-
ward councils. Provincial 7. Relief measures floated April to mid-July, applicable
and municipal governments by Nepal Rastra Bank to borrowers from affected
will also distribute food aid NRB is proactive in sectors, (viii) Lowered the
depending on size of families, addressing the impact policy rate from 3.5 percent
and with special priority for of Covid-19 in Nepalese to 3 percent and announced
expecting mothers, orphans, economy, and in that that additional liquidity
the disabled or those with regard floated the following support will be made available
chronic illnesses. measures: through longer-term repo
The government has asked (i) To provide additional facility as necessary, (ix) The
companies, especially those liquidity to the financial limit on the loan to value
in the tourism sector to pay system, cash reserve ratio ratio for personal residential
has been lowered from 4 to home loans was raised to 60
salaries for employees for
3 percent and reduced the percent and margin natured
the period March-April, for
interest rate on the standing loans to 70 percent from
which they will be allowed to
liquidity facility rate from 6 65 percent, (x) The limit on
use social welfare funds until
to 5 percent, (ii) Relaxation banks’ total loans was raised
business returns to normal. to 85 percent of the sum of
The government announced of the requirement for having
2 percent countercyclical core credit and deposits from
to deposit the salaries for 80 percent, and (xi) Banks
capital buffer that was due
March-April to workers in required to increase their
in July 2020, (iii) The size
the organized sector who of the Refinance Fund has loans to priority sectors,
are registered with the Social been increased to provide such as agriculture, energy,
Security Fund. subsidized funding for tourism, and micro, small
The government has also banks willing to lend at a and mid-size enterprises, to
asked landlords not to concessional rate to priority 40 percent from 25 percent
demand one-month rent sectors including SMEs by 2024.
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NRB News

8. Development Partners social protection and create to the concerned agencies

joining hands more employment. must be the priority. The
To support the Covid-19 9. Conclusion goal should be to effectively
response, International Fiscal policy response to the contain the spread within
Monetary Fund, World Bank Covid-19 emergency has been the country in the most cost-
and Asian Development Bank observed quick and powerful effective way, but without
have extended credit support. at the global level. Unlike in the compromising quality
IMF RCF US$ 214 million, past, the Nepalese economy and standard healthcare
ADB US$ 250 million and is not shielded from the procedures. The government
WB US$ 29 million will help global outbreak of Covid-19. shall have to intensify market
to close the financing gap. Unfortunately, there is little monitoring to ensure that
Similarly, IMF has supported room that the government can suppliers and sectoral cartels
USD 3.85 million to Nepal do to mitigate the economic do not artificially raise prices
under the Catastrophe impact owing to limited fiscal taking advantage of market
Containment window of the space and budget execution uncertainty. It will aggravate
CCRT. Financial support of capacity. Nepal has lost its cost-push inflation in the
Donor’s Partners will support two main sources of income: face of supply disruption.
the Government’s National remittances and tourism. And To address the pandemic,
Relief Program that has while a drop in oil prices may government shall increase
been announced to address give breathing space. health spending, strengthen
the impact of the Covid-19 For the time being, prioritizing social assistance, ensure
pandemic and will help to preparedness and vigilance adequate liquidity in the
strengthen the Nepalese by deploying resources as banking system and support
public health system, provide well as allocating more funds access to credit. 

MoU Signed for BOK-KPP Program

Nepal Rastra Bank Under this policy recommendations.
(NRB) and Bank of program, Bank of Korea The program is expected to
Korea (BOK) have signed provides necessary policy provide important policy
the Memorandum of suggestions, field studies suggestions on Nepalese
Understanding (MoU) and capacity building macroeconomic analysis
of '2020 Bank of Korea - training opportunities by and prudent regulation.
Knowledge Partnership conducting in-depth study This is the fourth
Program (BOKKPP) on 15 on Nepal's macroeconomic round of BOK-KPP
July, 2020. Bank of Korea is analysis. It is stated that the
engagement, with the
the central bank of South program will focus on the
support of the Bank of
Korea. study of the institutional
Korea. Such kinds of
Mr. Narayan Prasad context and the impact of
Pokhrel, Director (Acting) collective discretionary studies were conducted on
of Office of the Governor regulation in terms of the projection of macro-
and Mr. Junseo PARK, financial stability. A joint economy modeling, policy
Deputy Director General, study team of BoK and NRB arrangements of payment
International Affairs will be mobilized for the system and financial literacy
Department signed on MoU study and provide an interim and inclusion. Initially such
on behalf of NRB and BoK and final (detailed) report agreement was signed in
respectively. to NRB in two phases with 2017. 
12
NRB News

Webinar on COVID-19 Plicy Sharing Central Banks

of SAARCFINANCE

Nepal Rastra Bank current economic situation Mr. Dev Kumar

(NRB) organized 'Webinar of Nepal and informed Dhakal; Executive Director
on Covid-19, Policy Sharing about the policy measures of Banks and Financial
by Members Central Banks adopted by the Government Institutions Regulation
of SAARCFINANCE' on of Nepal and NRB to address Department; Mr. Mukunda
participation of officials of the impact of Covid-19. Kumar Chhetri; Executive
Central Banks of SAARC Similarly, the officials from Director, Bank Supervision
nations on June 25, 2020. other central banks also
Department; Mr. Bam
The officials from informed about the policy
Da Afghanistan Bank, responses implemented by Bahadur Mishra; Executive
Bangladesh Bank, Royal their respective banks for Director, Foreign Exchange
Monetary Authority of Covid-19 containment. Management Department
Bhutan, Reserve Bank of The webinar is and other officials attended
India, Maldives Monetary expected to help in the the seminar.
Authority, State Bank of formulation of monetary SAARCFINANCE
Pakistan and Central Bank policy and other policy is a network of Governors
of Sri Lanka including NRB measures requiring and Finance Secretaries
participated in the seminar. minimization the impact of of member states in the
On the occasion, Deputy Covid-19 on the financial South Asian Association
Governor of NRB Chinta sector. Executive Director for Regional Cooperation
Mani Siwakoti expressed of the Governor's Office, (SAARC). SAARCFINANCE
welcome remarks and Dr. Nephil Matangi Maskay
was established in 1998 with
informed about the impact thanked all the participants.
of Covid-19 in Nepalese The program was conducted the objective of promoting,
economy and financial sector. by Mr. Govinda Prasad cooperation, harmonization
Dr. Gunakar Bhatta, Nagila, Director of of banking legislation and
Executive Director of Office of the Governor practices among the SAARC
NRB's Economic Research and SAARCFINANCE nations on macroeconomic
Department, presented the Coordinator. policy. 
Publisher Editorial Team:
Nepal Rastra Bank Editor: Ganesh Man Maharjan
Office of the Governor Narayan Prasad Pokhrel Samita Shrestha
Baluwatar, Kathmandu Lal Kumar Subedi
Ph: No. 4411250 ext: 139/140 www.nrb.org.np Email: samachar@nrb.org.np