KATHMANDU, JULY 30
Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari has said the Monetary Policy for the current fiscal is based on a review of the overall existing scenario of the nation's economy.
In his address during the post-Monetary Policy discussion organised by the IBN Media here today, the governor argued that there was a compelling ground to opt for a liberal economic policy.
The interest rate has been lowered from seven per cent to 6.5 per cent. This liberal policy was taken upon analysing the prevailing situation. One of the contributing factors for this reduction is the ease in liquidity, according to the governor who said the Monetary Policy also aimed to uplift real estate industry.
He went on to say the Monetary Policy has set the target of credit growth of the banks and financial institutions at 11.5 per cent and to tame inflation at 6.5 per cent by pursuing six per cent economic growth.
According to him, NRB has set a target of credit disbursements worth Rs 562 billion and that this target is based on the analysis of monetary indicators.
On the same occasion, former minister for economic affairs of Sudurpashim, Jhapat Bohora advised the bank and financial institutions to practise self-regulations.
According to him, the new Monetary Policy has rightly analysed the existing economic situation and presented appropriate measures for improvement. He stressed on the need to open an infrastructure development bank in each province.
Nepal Bankers' Association President Sunil KC said that if the Rs 562 billion target of loan disbursement was centered on production-based and small and medium-scale industries, it would contribute to improving the economy.
He said the provision to offering a fixed deposit collection facility at a lower interest rate corridor aiming to increase the effectiveness of interest corridor is positive.
The Monetary Policy has included the provision of bringing the micro stress testing framework in evaluating the quality of assets in the banking sector, reducing the credit risks, and assessing the possible pressure in the financial sector due to overall economic fluctuations, said KC.
"The Monetary Policy has accommodated issues like the facility of permanent deposit collection, bringing the micro stress testing framework and the development of the central consumer identification system that would link the national identity card with the centralised KYC system," he said.
Former banker Analraj Bhattarai said the target of expanding the credit growth to 11.5 per cent from the previous fiscal's three per cent was ambitious. "The credit growth rate for the current fiscal cannot exceed 5.91 per cent. We can assume that the central bank's target in the Monetary Policy is ambitious," he said.
He also cast his doubt over the achievement of the economic growth target set by the government.
The NRB Executive Director Prakash Shrestha stressed the need for increasing the size of capital expenditure and stimulating the market to meet the target of loan expansion.
"We think that the credit growth rate can be inconsistent.
But we have kept this rate being optimistic. We think that there cannot be enough resources to achieve this credit growth rate. But the NRB believes that the government should spend capital as per the target, which may increase the demand for loans by energising the market," he said.
The flexible policy taken by the NRB for the recovery of the slowed down economy due to COVID-19 has had an impact on other indicators of the economy and other sectors, he opined.
Loan investment in the domestic economy and the production sector could provide space for additional credit expansion. But the use of credit in importing goods could invite more problems, he cautioned.
Economist Bishwas Gauchan said although credit flow to private sector has been increasing lately, the results are yet to be seen.
"Loans should not be increased in unproductive sector like real estate. Drop in imports now is not the result of increase in domestic production but low demand."
In a situation wherein the credit expansion is centralised, only big businesspersons will have access to credit, economist Kalpana Khanal said, emphasising the need for decentralising credit expansion.
A version of this article appears in the print on July 31, 2023, of The Himalayan Times.
