The COVID-19 pandemic has brought nations across the globe to their knees, with disastrous repercussions on the people’s mobility, economy, trade and supply chains of basic commodities. It hit hard both micro- and macroeconomic spheres as manufacturing and service sector shrank beyond imagination. As business activities came to an abrupt halt, banking sector suffered from the low transaction and problems in the adjustment of interest rates. The pandemic and resultant extended lockdown hampered the government’s efforts to maintain sustained growth of Gross Domestic Product (GDP), keep unemployment rate at low level, and manage foreign exchange and inflation in a predictable range. It is only with the proper monetary policy that the country can fix these macroeconomic challenges effectively because it includes the measures such as modifying interest rates, refinancing, issuing government bonds, managing the money supply and regulating foreign exchange rates.

Taking into account the corona-induced looming economic recession, Nepal Rastra Bank (NRB) the other day rolled out a set of new monetary policies to rescue the hard-hit businesses like tourism, hospitality, manufacturing and trade as well as troubled banks and financial institutions (BFIs). It has extended the loan repayment deadline, and offered refinance facilities, grace period extension for infrastructure projects and concessional loans to the worst-hit sector like airlines services, hotels, restaurants and other tourism-related businesses. The business entrepreneurs have felt a huge respite after the central government announced the extension of loan repayment period by a year, with an assurance that it would consider extend the deadline further if situation demands. Those moderately affected by the lockdown will get nine-month period to repay the loan’s instalment and interest. The policy has a provision to restructure and reschedule the loans of the debtor active till mid-January next year if the client presents a written action plan. The loan restructuring will be carried out through the instruments like private equity, venture capital, debt equity conversion and special purpose vehicle, according to the news report of this daily.

The BFIs have a reason to commend the new monetary policy that has promised to revise the credit to core-capital plus deposit (CCD) ratio by 5 to 85 per cent for the current fiscal year. This measure is likely to open a window for the investment of more than Rs 183 billion and boost the confidence of local and foreign investors. In yet another important step, the central bank has prevented the BFIs from distributing case dividend in cash they earn net profit less than 5 per cent of the paid-up capital. Those earning higher profit can distribute only 30 per cent of it in the cash dividend. This is prudent policy aimed at diverting scarce resources to the productive economic sector at a time when unemployment rate has soared, with hundreds of thousands of Nepali migrant workers returning home after losing jobs in the foreign labour market.

The NRB has announced to bring down the microfinance loan to 15 per cent from 18 per cent. It has unveiled regulatory provisions for the licensing process for the payment service providers. The special refinancing for the export-oriented industry and sick enterprises, micro, cottage and small enterprises is expected to revive the slackened industries. The policy calls on related banks to issue agriculture and energy bonds, and Farmer Credit Cards to generate additional resources to tap the immense potentials that the country’s hydropower and agro sector hold. The NRB has introduced pragmatic and realistic monetary policy expected to rescue the flattened economy by restoring stability in the banking sector and encouraging investment in new projects.