In a contrary to the expectations that monetary arrangements will be eased for credit expansion, the Nepal Rastra Bank (NRB) has continued the existing direction of the monetary policy for the current fiscal year. In a mid-term review of the monetary policy announced on Friday, the central bank continued its approach of controlling credit expansion ignoring the increased calls for easing from the business community and asset market investors. With the review, the central bank has made it clear that economic risks still persist and that the easy availability of credit could again lead to a situation of a surge in imports and depletion of forex reserves.  With import restrictions lifted, ease of credit could again mount pressure on the external sector of the economy, according to the NRB. Thanks to the eight months-long import restrictions, the country's external sector has come back to normalcy with rising forex reserves and remittances and improving the balance of payment (BoP). NRB had announced a tighter monetary policy last July mainly due to the shaky situation of the country's external sector.

The central bank in the half-yearly review of the monetary policy has provided some flexibility for small borrowers.  The central bank has extended the time for borrowers who are facing difficulty to pay loan installments and interest amounts on time due to a lack of cash flow. Banks have been barred from taking penalty interest if a borrower makes payment of loans along with the interest within a month after the expiry of the deadline till mid-June 2023.

Likewise, the central bank, in order to facilitate the operation of small and medium enterprises and businesses, has also come up with a provision that loans up to Rs 20 million that has remained active until mid-January, 2023 can be restructured and tabulated within mid-July, 2023 16 after analyzing their cash flow and incomes. As NRB continued with its policies of monetary tightening, the private sector bodies have expressed displeasure over the mid-term review. In a public event held in Kathmandu on Friday, the President of the Federation of Nepalese Chambers of Commerce and Industry Shekhar Golchha said that the review of the monetary policy has not come as expected. "In order to boost the economy in the current state, it is necessary to make the economic activity sustainable, for that the interest rate had to be reduced. However, the central bank did not bring a concrete policy to reduce the borrowing rate,'' said Golchha. During the same event, FNCCI Vice President Anjan Shrestha, also termed the mid-term review of the monetary policy as 'insufficient'. However, Prakash Kumar Shrestha, Executive Director of NRB said that there is still a risk of imports surging following the lifting of restrictions. If that happens, it will again put pressure on the external sector. "Along with this, the average inflation is still above the target. Therefore, the NRB has not deviated from the direction of the monetary policy during the mid-term review," said Shrestha. NRB has kept the interest rate corridor unchanged. The cash reserve ratio (CRR), is unchanged at four percent while the statutory liquidity ratio (SLR) is also kept unchanged at 12 percent. The central bank has said it will introduce a policy of providing overnight liquidity facilities to banks and financial institutions at an interest rate of 7 percent. Earlier, banks and financial institutions were given overnight liquidity at 8.5 percent interest. "This will help to reduce the borrowing rates," said Shrestha. Similarly, a policy has been introduced to make the monitoring of the spread rate and the premium charged from borrowers effective. The spread rate, which is currently 4.4 percent, has been arranged to be reduced to 4.2 percent by mid-March and to 4 percent by next June through the first quarter review of monetary policy.