• Q1 review of Monetary Policy
KATHMANDU, NOVEMBER 29
Federation of Nepalese Chambers of Commerce and Industry (FNCCI) - the largest private sector umbrella organisation - has said the recently unveiled first quarter review of the Monetary Policy for fiscal year 2022- 23 by the Nepal Rastra Bank is unable to address current economic downturn.
Issuing a press statement today, FNCCI has stated that the economy is on the verge of collapse with multiple factors such as quickening inflation, liquidity crunch, bank's high interest rates.
"It is not only the private sector, but the government and the general public have also been adversely affected by the economic crises. The six-year high inflation has made the lives of the general public difficult, whereas the government's revenue generation has also taken a hit," the press release read The federation has pointed out that the rapid loan disbursement by the banking and financial institutions during the post COVID-pandemic prompted the economic downfall with depleting foreign exchange reserves due to excessive import growth.
"In the five months of previous fiscal year, the BFIs' the credit disbursement was almost three times higher than deposits. Likewise, the foreign exchange reserves has slumped by around 17 per cent in a year. If the central bank had tightened the loan outflow on time, the government would not have to impose import restrictions at the moment."
The federation has welcomed the NRB's move through review to reduce the interest rate spread (difference between interest rates between loan and deposit) of BFIs.
Following the reduction in interest rate spread, the FNCCI expects that the premium rate charged by BFIs while setting the loan interest rate will not increase. However, the federation has stated that interest rate on loans will not come down immediately.
The central bank, unveiling the first quarter review of the Monetary Policy 2022- 23, had reduced the interest rate spread of commercial banks from 4.4 per cent to four per cent.
Likewise, the average interest rate difference of development banks and finance companies was reduced from five per cent to 4.6 per cent.
The federation has also drawn the attention of the central bank to reconsider the provision of base rate for BFIs. "Unless the base rate of BFIs are brought down, the interest rate will be high. Hence, the government and NRB should coordinate to inject liquidity and decrease the interest rate."
Likewise, stating that around Rs 60 billion will reenter the market in mid-January, the FNCCI has urged NRB to provide at least one year timeframe for refinanced loans.
The federation has also suggested to decrease the cash reserve ratio (CRR) by one percentage point and inject cash through the government treasury to ease the ongoing liquidity crunch.
Moreover, the federation has urged the Ministry of Finance to accelerate capital expenditure. "The private sector and banks should also be encouraged to take loans from abroad (external commercial borrowing)."
A version of this article appears in the print on November 30, 2022, of The Himalayan Times.zz