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Monetary policy on Wednesday
KATHMANDU, JUL 26 -
Nepal Rastra Bank (NRB) is all set to make public the monetary policy on Wednesday although the central bank had delayed the process to wait for a new government.
Governor Yubaraj Khatiwada will be able to present a significant improvement in the balance of payment (BoP) situation with its deficit coming down to just around Rs. 3 billion. The BoP has remained negative by Rs. 15 billion until the first 11 months of the last fiscal year.
Generally, the monetary policy is brought in to support the financial and development target of the budget announced by the government.
NRB officials said the policy will incorporate programmes to address the increased trade deficit and promote export that resulted in the BoP deficit.
The monetary policy will also introduce some policies to substitute imports and provide some facilities to sectors with export potential. Central bank officials said they will add the list of goods that can be imported from India by paying in US dollars instead of IC.
According to NRB sources, the policy has provisions that will allow Nepali industries to help import substitution to get loans from foreign financial institutions.
The country faced the BoP deficit for the first time in two-and-a-half decades. With the liquidity crunch in the banking system, credit has been discouraged in certain sectors such as real estate. As such, the interest rate has gone up. The monetary policy generally addresses the financial health of the country, BoP and inflation.
The policy may not be able to address the BoP deficit and inflation alone because the first is also connected with the government’s fiscal policy and the latter is affected by non-economic factors.
Bankers have been demanding flexibility in credit policy. They are also demanding that the interest rate be lowered to loans going to the industrial sector, but the central bank is not in favour of lowering the rate.
With the Reserve Bank of India indicating an increase in the interest rate with the quarterly evaluation of the monetary policy on Tuesday, it will be difficult for the NRB to reduce the rate because the Nepali currency is pegged to the Indian currency.
However, the central bank will feel more confident while taking ambitious decisions, given the easing liquidity situation and increasing deposits in the banking system.
The Federation of Nepalese Chambers of Commerce and Industry has asked the central bank to fix the credit percentage in the productive sector. “The maximum interest rate for credits that go to the industrial sector should be fixed,” the FNCCI has recommended.
The Confederation of Nepalese Industries (CNI) has suggested establishing asset Management Company to manage non-banking assets. It has also demanded a separate credit policy for land transactions and housing projects.
Posted on: 2010-07-27 08:35
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