Himalayan News Service

Kathmandu, July 5:

On the eve of the release of monetary policy by the Nepal Rastra Bank (NRB) in about two weeks’ time, experts have stressed on the need to introduce an effective and workable monetary policy to maintain price stability and macro-economic management. Deputy governor of NRB, Lekhnath Bhusal informed the gathering of bankers and financial experts that the central bank would, as is the practice, release the monetary policy for 2005-06 immediate after the presentation of the national budget by the government. He said that the central bank is aware of its past mistakes and is trying to formulate a new monetary policy taking into consideration the economic indicators and induction of new monetary instruments in order to achieve nation’s overall economic development and price stability. He stressed that banks and financial institutions play a crucial role in effective implementation of the monetary policy.

Public at times raise questions about the protection of deposits by maintaining spr-ead rates between ‘ending and deposits’ and the central bank has already warned commercial banks to protect the depositors. Narendra Bhattarai, immediate past-president of Nepal Bankers’ Association (NBA), said that while formulating the monetary policy, we have to effectively take stock of the last monetary policy and its impact on our financial sector’s stability. He said that external shocks to our economy, especially on the financial sector needs to be reviewed effectively. Economic growth and price stability should be the major focus of the forthcoming monetary policy, he suggested. If the financial sector is not sound, economy would not survive in this competitive and challenging environment, therefore the most important thing is to protect the country’s crucial financial sector as the banking community has been isolated currently from all segments, said Bhattarai. Talking about the bank’s lending and deposit rates, Bhattarai stressed that banks should be allowed to determine interests rates on this competitive market.

The current inflation rate stands at about six per cent and the GDP growth rate is less than two per cent as per government figures. India, through its monetary policy announced two months ago, has stated to maintain the economic growth at seven per cent and inflation at five per cent, which can be a lesson for Nepal as well. India wants to maintain a high growth rate momentum and contain inflation at a tolerated level thr-ough a cautious policy. Experts said that the apex bank should adopt a consistent policy through open market and let the interest rate determined by the market. At a time when interest elasticity is low in India and not in Nepal, transparent mechanisms are a pre-requisite for making monetary policy a success. Jagdish Agrawal, executive member of Confederation of Nepalese Industries (CNI), asked the central bank to bring a ‘disciplinary monetary policy’. He demanded a policy that ensures price stability and controls inflation. The current inflation rate is hovering around six per cent. He said that India’s development reflects on Nepal’s activities as well on its economic

sectors. Dr Guna Nidhi Sharma, professor of economics at Tribhuvan University, gave an impression that Nepal’s monetary policy was being slowly centralised. Therefore, we should be able to bring the policy, which can contain external shocks to our economy and revive domestic sectors, said Sharma.