Nepal Rastra Bank has announced plans to review the existing Standing Deposit Facility (SDF) provision in an effort to make the interest rate corridor more effective. The move was revealed through the third review of the monetary policy for the current fiscal year, at a time when bank interest rates have been continuously declining.
Under the SDF arrangement, banks are allowed to deposit surplus funds with the central bank. This monetary tool is used by the NRB to absorb excess liquidity from the banking system and help maintain stability in interest rates.
Although the central bank has introduced several monetary measures in recent months to stabilize rates, their impact has remained limited due to the ongoing economic slowdown. Commercial banks have reduced interest rates on individual fixed deposits to as low as 4.34 percent for the period between mid-May and mid-June.
In its policy review, the NRB stated that both foreign exchange reserves and inflation remain within targeted levels. Considering the country’s weak economic growth, the central bank has continued its flexible monetary policy stance. It has also maintained existing provisions related to the interest rate corridor, bank rate, mandatory cash reserve, and statutory liquidity ratio.
