NRB reduces CRR, targets to increase liquidity flow

BY A STAFF REPORTER

Kathmandu, Dec. 20: Nepal Rastra Bank (NRB) has announced cuts in Capital Reserve Ratio (CRR) by one percentage point in average and reduced refinancing rate ranging from one to two percentage points effective from today.

According to the new provision, the commercial banks are required to keep a capital reserve of seven per cent of the total deposit amount (current and saving accounts) at the central bank whereas the reserve ratio for the fixed accounts is 4.5 per cent.

The ratio of cash in vault is three per cent as earlier. Previously, they had to keep a reserve of eight per cent in cases of current and savings accounts and six per cent in the fixed account.

The NRB had reduced the rate of Capital Reserve Ratio from 12 per cent to 10 per cent in nearly five years ago.

NRB Governor Dr. Tilak Rawal told a press conference at his office this afternoon that the new provisions of Capital Reserve Ratio would release about two billion rupees in the money market. "We have taken this step with a view to increase liquidity in the commercial banks and to increase the funds that will go to boost industry, tourism and export."

The central bank has cut the refinancing rate on the convertible currency export loans by two per cent. For commercial banks, the NRB has fixed a new refinancing rate. According to which refinancing rate on industrial rehabilitation loans have been reduced to three per cent from 4.5 per cent. Similarly the bank rate on the loans of rural development bank and Nepalese currency export has been whittled down from 5.5 per cent to 4.5 per cent.

The refinancing rate on all other kinds of loans has been brought down to 5.5 per cent from 6.5 per cent.

Dr. Rawal said this measure was taken in line with the government’s commitment in current fiscal year’s budget to provide up to one billion rupees of loans to rehabilitate the sick industries.

It is to be noted that the NRB had reduced the refinancing rates in mid-April 2000 ranging from 0-2.5 per cent.

"The central bank has reduced the refinancing rates with a view to control the interest rates on loans being provided by commercial banks," Governor Dr. Rawal said. "The objective behind this is to provide loans to the industrialists and businessmen at lower interest rates."

Dr. Rawal said the apex monetary authority of the country had taken flexible measures keeping in view the poor performance of the country’s economy, particularly tourism, industry and export during the first four months of the current fiscal year.

He said these measures were expected to expand economic activities and help maintain macroeconomic stability.

Replying to a query whether the excess supply of money in the market would trigge the inflation, Dr. Rawal said the release of cash in the market was not likely to activate any sort of inflation. "It is estimated thaat the inflation is not going to exceed five per cent during the current fiscal year." The rate of inflation stood at 3.5 per cent during 1999/2000 and 2.4 per cent in 2000-2001.

Asked if the new measures would result in capital flight, Dr. Rawal said, "We have given consideration to this aspect. We have been watching the policies taken by India." He said the central bank would watch closely the macro-economic situation of the country and take reorient its policy as demanded by the economic fundamentals.

"If we see positive results of our measures we will adopt a more flexible policy in future, otherwise we will announce contractionary measures."

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