Nepal’s Monetary Policy 2081/82: Catalysts for Growth in the Share Market and Real Estate Sector

Monetary policy is a series of activities performed by a country’s central bank, such as the Nepal Rastra Bank, to regulate the money supply and achieve macroeconomic objectives such as inflation, consumption, growth, and liquidity. These activities include controlling interest rates, conducting open market operations, and establishing reserve requirements for banks. The central bank’s goal in altering these levers is to affect economic activity, maintain price stability, and promote employment and economic growth.

Monetary policy normally aims to stabilise the currency, limit inflation, and create an environment conducive to economic growth. The central bank can impact consumer spending, company investment, and general economic health by managing money supply and demand. Effective monetary policy enhances public trust in the financial system and promotes long-term economic stability.

The Nepal Rastra Bank (NRB) has announced its monetary policy for fiscal year 2081/82, which includes numerous major objectives and modifications to promote economic stability and growth. Here are some highlights:

Interest Rate Adjustments:

• The bank rate has been cut from 7% to 6.5 percent.
• The policy rate was reduced from 5.5% to 5%.
• The lowest limit of the interest rate corridor remains at 3%.

Economic Growth and Inflation:

• The policy targets a 6% economic growth rate.
• Inflation is predicted to remain around 5%.
• Foreign exchange reserves should cover at least seven months of imports.

Credit and liquidity provisions:

• The loan growth target is set at 12.5%, up from 11.5% last year.
• The NRB will continue to offer a permanent liquidity facility at bank rates.
• Measures for increasing credit flow to productive sectors while ensuring financial stability.

Foreign Exchange Policies:

• Foreign exchange transaction limits have been tightened, with passport-based transactions now capped at $50,000 and imports at $100,000.
• More flexible conditions for obtaining foreign exchange for trading.

Asset Management:

• Plans to write the Asset Management Company Act to handle financial institutions’ non-performing assets.

Sector-specific initiatives:

• Efforts to help the construction industry include extending loan payback periods for building companies till the end of Mangsir 2081.

These initiatives seek to strike a balance between regulatory control and the facilitation of productive financial activities, so guaranteeing macroeconomic stability while stimulating growth in a variety of industries.

Effects on the Share Market

Nepal’s monetary policy for fiscal year 2081/82 has the potential to dramatically influence the share market. By lowering the bank rate from 7% to 6.5% and the policy rate from 5.5% to 5%, the policy attempts to make borrowing more affordable and stimulate investment. Lower interest rates can improve market liquidity, encouraging investors to shift more assets to equities in search of higher returns than fixed-income products. Increased demand for equities can lead to higher share prices and better market performance.

Furthermore, the planned economic growth of 6% and the expectation of keeping inflation at 5% create a stable macroeconomic environment that can boost investor confidence. When the economy is forecast to grow and inflation is kept under control, businesses can perform better, resulting in higher earnings and more appealing stock valuations. This positive outlook can attract both domestic and foreign investors, boosting the share market.

Effects on Real Estate

Interest rate reductions also have a direct impact on the real estate industry, as they cut mortgage rates, making home loans and other property-related finance more accessible. This may increase demand for real estate as more people and corporations find it cheaper to finance property purchases. The extension of loan repayment durations for the construction sector till the end of Mangsir 2081 can alleviate financial strains on developers, promoting additional construction activities and potentially increasing housing supply.

Furthermore, the policy’s emphasis on preserving sufficient foreign exchange reserves and strengthening liquidity conditions can boost general economic stability, which is beneficial to long-term assets such as real estate. As investors’ confidence in the economy rises, they may be more willing to invest in real estate, expecting steady or rising values. Increased demand and improved financing conditions can boost real estate expansion.