MONETARY POLICY

YASHASWI SHARMA
PRAKRITI NEUPANE
DEEPENDRA SONAR
MINA TIMILSINA
TABLE OF CONTENT

 CONCEPT
 TYPES OF MONETARY POLICY
 FEATURES OF MONETARY POLICY OF NEPAL 2080/81
 TOOLS USED IN MONETARY POLICY
 OPPORTUNITY
 CHALLENGES
 MONETARY VS FISCAL POLICY
CONCEPT

 Monetary policy also known as credit policy, is the policy that is purely managed
by the Central Bank of Nepal (NRB) to control the money supply and regulate
the cost to achieve the socio-economic objective of the economy.
 It determines the size and rate of growth in the money supply
 There are 2 objectives i.e.
a) primary objectives- to manage the inflation
b) secondary objectives – to reduce the unemployment
Types of monetary policy
Features of monetary policy 2080/81

1. Policy formulated by the Central Bank of the country to support economic activities.
2. Aim to support economic growth and job creation through the management of money
supply, credit, and interest
3. The bank rate remains unchanged at 7.5%, emphasizing the Central Bank’s
commitment to maintaining financial stability and controlling inflation
4. Policy rate has been reduced by 0.5% bringing them down to 6.5%
5. The deposit collection rate has been reduced from 5.5 % to 4.5%
6. CRR and SLR remain to unchanged
7. Aim to keep inflation at 6.5% and increase private sector credit by 11.5%
MONETARY POLICY COMPARISON 2079/80
VS 2080/81
2079/80 2080/81
Inflation Target 7% 6.5%

Economic Growth Rate 8% 6%

Foreign exchange rate to be 7 months 7 months

maintained
Bank Rate 7.5 7.5

Policy Rate 7% 6.5

Deposit Collection Rate 5.5% 4.5%

Cash Reserve Rate 4% 4%

Standard Liquidity Ratio 12% 12%

TOOLS TO BE USED IN MONETARY
POLICY

 QUANTITATIVE TOOLS: The quantitative instruments are also known as

general tools used by NRB. Quantitative methods of monetary policy include
those instruments that focus on the overall supply of money. It includes:-
a) Bank Rate
b) Open Market Operation
c) Legal Reserve Ratio
 QUALITATIVE TOOLS: a set of instruments used by the Nepal Rastra Bank
that discriminate the use and allocation of credit to different sectors of the
economy. It focuses more on the quality of the money supply such as Budget.
a) Credit Of Rationing
b) Fixing Margin
c) Restriction Over Credit
 Opportunity

 Intends to maintain financial stability in the country, promote agriculture, and boost
investment in the infrastructure sector.
 Adopts measures to support and achieve targets set in the fiscal budget 2079/80
including economic growth target (8%), and inflation projection (within 7 %).
 Promoting financial governance and consolidation with modern technology.
 Connecting rural areas with digitalization
 Maintaining financial discipline in the domestic market and expanding people's
access to financial services.
 Challenges

 Expansionary monetary policy adds to the inflationary pressure to some extent.

 Focus on accelerating the current economic growth momentum
 Narrowing down the trade deficit
 Increasing the flow of loans to small and medium enterprises.
 Minimize discrepancy in the banking industry.
 Merger of banks as expected
 Investment on the unproductive sector
 The time limit on refinancing for the industrial sector.
Monetary policy vs fiscal policy