KATHMANDU, May 16: Nepal Rastra Bank (NRB) has announced to revisit the existing provision of standing deposit facility (SDF) targeting to make interest rate corridor more effective.
The NRB through the third review of the monetary policy for the current Fiscal Year (FY) has planned to come up with the measure at a time when the interest rate of banks has been falling successively. The NRB has been providing the SDF arrangement in which the banks can park their surplus funds with the central bank. The NRB uses this instrument to absorb excess liquidity from the country’s banking system.
Revised interest rate corridor system introduced
Despite the central bank implementing various monetary tools of late to stabilize the interest rate, it is being ineffective due to the ongoing economic slowdown. Commercial banks have lowered their interest rate on individual fixed deposits to as low as 4.34 percent for the month between mid-May and mid-June.
The NRB in its policy review has stated that the foreign exchange reserves and inflation are in line with its target and that it has continued the flexible monetary policy in view of the low economic growth. In addition, the central bank has given continuity to the existing arrangements related to the interest rate corridor, bank rate, mandatory cash balance and statutory liquidity ratio.
