Good news for depositors, travellers

Gopal Tiwari

Kathmandu, July 20:

Nepal Rastra Bank (NRB) is all set to release monetary policy for fiscal year 2005-06 on Friday, for which work at warfooting is going on.

The forthcoming monetary policy, which aims at controlling inflation and maintaining macroeconomic stability, is being unveiled in a more liberalised form. NRB is likely to offer tough notes to commercial banks to address the interest of depositors, forcing them to confer about six per cent interest rates on their deposits.

NRB is likely to take a liberalised ‘attitude’ towards travellers going abroad, in terms of allowing them to carry foreign currency, said a high-level banking source.

“With a view to address issues surrounding exporters and multinational companies, NRB is making a special provision in the monetary policy that will boost Nepal’s foreign trade which has not provisioned earlier,” said the source. One of the exporters told The Himalayan Times that, if they have sister concern offices in Europe or US, exports will get a boost. “This is expected to bridge the ‘liquidity gap’ of commercial banks and to realise the flow of money at lower interests rate from international market.”

The monetary policy is likely to make a provision for foreign investors to enjoy loan facility from abroad directly to do businesses here in Nepal.

Similarly, treasury bills’ (TB) transaction is being further liberalised for which mechanisms are being announced through the monetary policy to participate in other money-market players in treasury bills to broaden its transaction, said the source on conditions of anonymity.

Liberalising the monetary policy to boost investment climate and macro-economic stability is going to be the major hallmark this time.

Expenses of the government comes from treasury bills in the form of ‘internal borrowing’ which is estimated at over Rs 11 billion to be sucked from ‘treasury bills’ this year as the budget has already spelt out.

India, a few months back, had released a cautious monetary policy and stated to maintain a seven per cent economic growth rate and inflation at five per cent, which needs to be studied by NRB as well.

The country’s current inflation as per NRB, stands at 6.4 per cent and economic growth rate stands at about two per cent. Under such a situation, NRB is in a dilemma as how economic growth projections are to be made against the recently announced government’s budget that has pegged GDP growth at 4.5 per cent.

Simplification of refinancing rate is being taken seriously and the central bank is also pegging it at six per cent.

NRB at times goes against the announced monetary policy. In the beginning, central bank had said that under the stand-by Liquidity Facility (SLF), commercial banks would get 90 per cent.

But later on, NRB did not provide more than 50 per cent. Since the central bank is the lender of the last resort, when commercial banks do not get money from call money market, they need more amount of money, said banking sources.

Current cash reserve requirement (CRR) stands at five per cent. If NRB increases it, liquidity would be tightened and a difficult situation will arise in relation to investment and money supply will get squeezed.

But if CRR is decreased, it will to some extent, can control inflation. Some bankers opined that monetary authority in Nepal will have a better control if monetary policy could predict and ensure price and exchange rate stability, in close relation to India’s.