KATHMANDU, FEBRUARY 19

Federation of Nepalese Chambers of Commerce and Industry (FNCCI) - the largest private sector umbrella organisation - has said the recently unveiled half-yearly review of the monetary policy for fiscal year 2021-22 by the Nepal Rastra Bank will adversely affect the economic activities.

'While a study on providing subsidised loans to manufacturing industries could support industrialisation, the fact that majority of the recommendations made by the private sector have not been incorporated in the review could impact businesses and investment,' a FNCCI statement issued today reads.

The federation has pointed out that increasing the interest rate on deposits had failed to increase liquidity in the banks and financial institutions over the last six months. 'However, despite that, the policy review has focused on increasing the interest rate on credit, which could increase capital costs for businesses and even the banking sector itself.'

The central bank, which has been providing relief to COVID-battered businesses through refinancing, reschedule and restructuring of loans, has increased the rates on refinancing facility. 'This move, as the country is in the throes of the third wave of the pandemic, will especially negatively impact the small and medium enterprises.'

Through the review, the NRB has raised the maximum interest rate for refinanced loans to seven per cent from five per cent earlier.

The federation has also drawn the attention of the central bank towards the possibility of adverse impact on production, inflation, revenue and employment by centring the policy on discouraging increasing imports.

The FNCCI has also expressed concerns related to the announcement that the provisions of import from India based on credit facility shall be reviewed. 'It hints at the possibility that the government is mulling over clamping down on imports from India.'

The federation has warned of increase in illegal trade practices and soaring inflation if other alternatives to facilitate exports and increase flow of money into the country are not explored and only measures to discourage imports are implemented.

Moreover, the tightening of margin loans will unfavourably affect small investors, the federation has said.

The federation has urged the central bank to reconsider the provisions of the midterm review of the monetary policy that 'seem to have taken into consideration only immediately easing the ongoing liquidity crunch, but cannot be a long-term solution for the revival of the COVID-battered economy'.

A version of this article appears in the print on February 20, 2022, of The Himalayan Times.