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Nepal's Central Bank Provides Exchange Rate Hedging Facility for Foreign Investors to Minimize Exchange Rate Risks

Updated:2018-7-12 10:57:41    Source:www.tannet-group.comViews:278

It is reported that Nepal's central bank on July 11 announced providing an exchange rate hedging facility for the foreign investors making investments in the country's infrastructure sector to help minimize their exchange rate risks.

Unveiling the "Monetary Policy" in Kathmandu for the next fiscal year 2018-19 that begins in mid-July, Nepal Ratra Bank (NRB) Governor Chiranjeevi Nepal said that a separate account of foreign direct investment (FDI) coming into the infrastructure sector would be created at the central bank and the investors would be provided with an exchange rate hedging facility based on their investment in the country.

"This facility is expected to help attract more FDI in the areas of big infrastructure projects, transmission lines, roads and other infrastructure projects," said the bank governor.

"A working procedure will be prepared to implement this provision."

A senior official of NRB told Xinhua on Wednesday that with this facility, it is expected that the FDI invested in Nepal would not be reduced due to exchange rate fluctuation.

The monetary policy has also made provision of allowing foreign investors to borrow loans from Nepali commercial banks in domestic currency against the collateral of foreign exchanges they have brought to Nepal to invest in certain industries and projects.

As the Nepali government is targeting to achieve economic growth of eight percent in the next fiscal year, the NRB has announced a number of policy measures to support the government's target including measures to attract more foreign investments.

Nepali central bank opened the door for Nepal's all types of banks and financial institutions to borrow loans from foreign banks and financial institutions in foreign currencies.

In March, the NRB had provided such facility only to commercial banks to address the liquidity crunch that Nepal's banking system had been facing for some months.

According to monetary policy, they can borrow up to 25 percent of their core capital from foreign banks and financial institutions.

The new monetary policy also reduced cash reserve ratio (CRR) required to be maintained by banks and financial institutions to four percent from the existing six percent for the commercial banks and five percent for the development banks while keeping the ratio unchanged at four percent for the finance companies.

"This will help generate certain amount of liquidity for banks and financial institutions," said the bank governor. (Source: Xinhua News)

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