Business bodies welcome new monetary policy

By A Staff Reporter,Kathmandu, July 15: Private sector umbrella organisations have welcomed the newly unveiled monetary policy for the fiscal year 2025/26, expressing optimism that it will help stimulate economic activity, ease liquidity, and support credit expansion in key sectors.

The Nepal Chamber of Commerce (NCC) and Confederation of Nepalese Industries (CNI) praised the Nepal Rastra Bank (NRB) for introducing a policy aimed at economic revival through easy credit access, sector-specific support, and revised lending regulations.

Issuing a press statement, NCC said that the monetary policy for the fiscal year 2025/26 is positive and will facilitate financing.

It expressed its hope that monetary policy will make the financial sector dynamic through economic revival and easy credit flow. 

It said that current excess liquidity problem can be resolved if the credit flow to the private sector can be expanded by 12 per cent for the upcoming year.

"The bank rate, which is the upper limit of the interest rate corridor, has been reduced from 6.5 per cent to 6 per cent and the policy rate has been reduced from 5 per cent to 4.5 per cent. It is believed that this will manage liquidity in the market and prevent interest rates from increasing," said NCC.

The Chamber welcomed the provision mentioned in the monetary policy to increase the limit of credit flow for construction/purchase of private residential houses from Rs. 20 million to Rs. 30 million.

The Chamber believes that the provision that the loan-to-value ratio can be maintained at a maximum of 80 per cent for credit flow and at a maximum of 70 per cent for others will expand the real estate sector and help in making the economy vibrant.

The provision of the monetary policy to revise the working capital loan guidelines as needed based on the nature of the business and the loan repayment-income cycle, including in agriculture, small and cottage industries, education, health, sports, communication and media houses is positive, said NCC.

The Chamber welcomed the provision that allows agricultural or commercial loans of up to Rs. 1 million. 

The provision of including loans up to Rs. 30 million in loans to small and medium enterprises and counting them as loans flowing in designated areas is also positive

The Chamber believes that the provision mentioned in the monetary policy will encourage small agricultural loans and provide loans at cheap interest rates.

It said that borrowers in the hydropower sector will get relief if the provision related to capitalisation of interest on loans disbursed to the energy production sector is reviewed.

The Chamber welcomed the provision to increase the existing single customer credit limit for share margin loans provided by banks and financial institutions from Rs. 150 million to Rs. 250 million. The increment in the foreign exchange facility to US$ 3,000 from US$ 2,500 per visit to Nepali citizens travelling to countries other than India is positive, it said.

Similarly, the provision of providing loans of Rs. 300,000 to Rs. 500,000 to youth going for foreign employment without collateral is positive and has suggested making its practical implementation effective.

Similarly, the Confederation of Nepalese Industries (CNI) expected the new monetary policy to increase economic activity.  The announcement to revise the guidelines on working capital loans based on the nature of the industry and the loan repayment-income cycle is positive, it said. 

However, the Confederation suggested that it should be revised to include businesses such as manufacturing industries and construction sectors that require working capital loans. 

The Confederation has positively considered the issue of studying and reviewing the existing loan classification and loan loss provisions, and adopting a policy of providing loans based on the customer's credit score.

The CNI said that loans of up to Rs. 30 million for industries and businesses around the Postal Highway and Mid-Hill Highway will be provided at a 2 per cent premium on the base rate, and such loans will be counted as loans in the designated area for small and medium enterprises is positive. It will help small and medium entrepreneurs who take loans of up to Rs. 30 million to cope with the current difficult situation. 

"We believe that the provision that allows banks and financial institutions to invest in debentures issued by institutions established to invest in infrastructure will partially help improve the lack of investment in infrastructure," it said. 

As the monetary policy has proposed that the restriction on distributing more than 15 per cent of dividends (cash or bonus) by microfinance will be reviewed, this will increase the money (cash dividends) going to investors and it will help to increase demand, it said.

"Monetary policy has accepted the fact that the share of the private sector in total fixed capital formation is decreasing. Due to the contraction in market demand, private sector investment is also shrinking. Therefore, the CNI believes that NRB will issue instructions/guidelines to improve consumer morale and increase demand and encourage private investment in capital formation," it said.