Nepal Rastra Bank - the central monetary regulatory authority - has said the recently introduced measures were aimed at averting the liquidity crunch plaguing the market and reducing the county's ballooning trade deficit.

It is to be noted that through a circular issued on Monday, the central bank tightened imports of some luxury items in a bid to discourage imports. The soaring imports have been widening the country's trade deficit and depleting the foreign exchange reserves.

In an interaction programme with economic journalists organised here today, NRB Governor Maha Prasad Adhikari informed that the central bank has floated numerous financial instruments to ease the liquidity situation - Rs 2,500 billion through permanent liquidity facility, Rs 69 billion through overnight repo, Rs 220 billion through repo and Rs 27 billion through direct purchase as of Monday (December 20).

"An arrangement has been made to keep loan-deposit ratio at 90 per cent till mid-July 2022 while re-financing facility of Rs 92 billion has been approved so far in the current fiscal year," Governor Adhikari said.

The central bank has also made provisions so that the banks can count 80 per cent of the deposit at the local level, he noted.

Even though the exports have gone up, it has been unable to keep pace with the surging imports, while the remittance inflow has slowed down, which in turn has resulted in current account deficit and depletion of the foreign exchange reserves.

While deposit rates are similar to that of pre-COVID period, it is low compared to credit growth because of which the market is facing a liquidity crunch.

"This situation, however, is a recurring phenomenon in the Nepali economy as the Nepali rupee is a non-convertible currency, the country has weak export base and is overdependent on imports," as per a presentation prepared by Prakash Kumar Shrestha, director of Economic Research Department at the NRB.

In order to narrow down the ballooning trade deficit, the central bank has introduced various measures, including a limit on foreign currency availability for silver import, additional one per cent interest rate in the bank deposit of those employed abroad and arranging cent per cent cash margin in the import of certain goods and commodities.

The governor further informed that an arrangement has been made allowing the non-resident Nepalis and their associations to open bank accounts here in foreign currency.

Among other measures in place are cut-off in the facility of foreign currency cash exchange, control in the unlawful import of gold and reduction in the ceiling of 'non-deliverable forward' that can be kept in foreign countries.

"The country is heading towards economic recovery," the governor claimed, adding that the situation of trade deficit was due to the rise in the import and reduction of remittance inflow.

"All these things have happened during the course of economic recovery."

A version of this article appears in the print on December 23, 2021, of The Himalayan Times.