By Shanker Man Singh
Under the Nepal Rastra Bank Act, 2058, for economic stability and sustainable development of the economy, the monetary policy and foreign exchange policy must be formulated and managed by the person responsible for managing the monetary policy and the first semi-annual review of the monetary policy.
It was published on Magh 29, 2080. Nepal Rastra Bank is going to revise the method of determining the interest rate of institutional fixed deposits. Nepal Rastra Bank has announced this in its semi-annual review of the current financial year 2080/81.
According to this, when determining the interest rate of institutional fixed deposits, the Nepal Rastra Bank has stated that it will be allowed to set the interest rate up to 1 percentage point lower than the interest rate provided for individual fixed deposits. From this, the military, Citizen Investment Trust (CIT), Provident Fund, etc. will not look for more investment areas and keep them for some time, which will reduce the chance of taking risks.
The NRB has made public the semi-annual review of monetary policy today. The half-yearly review of monetary policy has been released today after the meeting of the board of directors held this evening.
In the particularity of the semi-annual review of monetary policy: given the internal and external economic situation and scenario and the policy arrangements made during the first quarter review, the rates under the interest rate corridor have been kept unchanged.
Also, the provisions regarding the mandatory cash ratio and the statutory liquidity ratio have been maintained. In order to make the interest rate corridor effective, it is said that the “permanent deposit facility” will be implemented from Falgun 2080. How effectively it functions, it can be active with the participation of the private sector.
When determining the interest rate of institutional fixed deposits, it has been arranged that it can be fixed by 1 percentage point lower than the interest rate provided for individual fixed deposits. On the other hand, inflows in agriculture, small, domestic, and medium enterprise businesses amounted to Rs. Loans up to 2 crore rupees will be counted in the “Regulatory Retail Portfolio”.
As a result of the implementation of the policy arrangements adopted since the review of the previous monetary policy to reduce the pressure on the stability of the external sector, the external sector indices have started to improve.
Foreign exchange reserves have increased their ability to support imports due to the reduction in foreign exchange savings and imports. The International Monetary Fund (IMF) has said that credit flow has not increased despite the adoption of loose monetary policy. Recently, the IMF said this in Kathmandu.
According to the IMF mission chief, the economic growth of Nepal in the current fiscal year 2080/81 is projected to be 3.1 percent. On the basis of increasing credit disbursement, increasing capital expenditures, increasing tourist arrivals, and increasing remittances, the economic growth in the current financial year is projected to be 3.1 percent.
In addition, the inflation rate is also lower than the target, according to the IMF. Even though the monetary policy is expansionary, the fact that credit flow has not increased as expected is also mentioned. However, it has also been mentioned that, even in the current situation, Nepal has the possibility of 5 percent economic growth.
The IMF has mentioned the reality that the government should increase capital expenditure and also increase internal revenue. There is a need for structural reforms for these tasks, and the Monetary Fund has also suggested that Nepal’s investment conference be used as an opportunity for structural reforms.
Similarly, cooperative organizations should also be brought under the scope of regulation. The team mentioned that after the implementation of the current capital loan directives brought by Nepal Rastra Bank, the results of the directives have started to be seen, and the directives should be fully followed. Now, rather than the assessment under the Extended Credit Facility (ECF) of the International Monetary Fund, the emphasis of the International Monetary Fund is on what the Nepalese government is doing.
Monetary policy has a direct impact on practically everything: the prices of goods and services paid by consumers, employment opportunities and workers’ wages, and the rate of return on retirees’ savings. Consequently, it is not enough for policymakers to communicate in technical terms to a limited audience of financial market participants; instead, communication tools are needed to explain these policy decisions to ordinary households and businesses.
The NRB, which plays the role of the government’s chief economic adviser, has analyzed that the real sector situation in Nepal is satisfactory despite the global economic recession.
The Central Bank has made such an analysis during the half-yearly review of monetary policy. In the financial year 2080/81, the average consumer inflation has been maintained at 6.47 percent in the first 6 months due to the policy of monetary management, so the annual average consumer inflation remains within the limit of 6.5 percent.
Consumer inflation in Poush 2080 on an annual point basis, it t seems to be 5.26 percent. While the goal of monetary policy is to maintain foreign exchange reserves sufficient to support at least 7 months of goods and services imports in the current financial year, the fact that foreign exchange reserves are sufficient to support 12.1 months of goods and services imports at the end of Poush 2080 and remittances are the main reason for the economy is positive for the economy.
In the financial year 2080/81, the detailed money supply is projected to increase by 12.5 percent and the credit flow from banks and financial institutions to the private sector will increase by 11.5 percent. The percentage has increased. Which is 134 percent less than the projection. It is a matter of concern and interest. It should be analyzed quickly, and seriously.
The liquidity situation in the banking system is comfortable. In Poush 2080, the weighted average interbank rate of banks and financial institutions remained at 2.86 percent. In the same month of the previous year, this interest rate was 7.53 percent. During the review period, it has decided to take loans from banks and financial institutions and microfinance financial institutions to restructure and reschedule loans to borrowers who are in trouble due to circumstances.
For the reconstruction of residential houses damaged by the latest earthquake, loans will be provided by adding a maximum of 2 percentage points to the base rate. Provisions related to easing the loan-mortgage ratio and encouraging banks and financial institutions to spend social responsibility funds for the reconstruction of public schools, public hospitals, and health posts damaged by the earthquake have been implemented.
Facilitating loan disbursement, reducing the risk burden of real estate loans and share mortgage loans of more than Rs.50 lakhs and easing the monthly installment income ratio for housing loans of up to Rs.50 lakhs have been implemented.
It remains to be seen what the impact of it will be on the economy and the stock market. The main role of central banks is to conduct monetary policy to achieve price stability and help manage economic fluctuations. The policy frameworks governing central banks have been subject to major changes in recent decades. Given the implementation status of the measures taken in the monetary policy recently and the existing national and international economic situation and scenario, the direction taken in the annual monetary policy has been continued in this review.
Based on the improvement in inflation and foreign exchange reserves, it seems that during the half-yearly review of the monetary policy, monetary measures will be changed as per the need.
On the whole, with the build-up of investable deposits in Nepal, credit flows can be expected to increase after the creation of favorable conditions, in addition to other factors.
The views expressed in this article are the author’s own and do not necessarily reflect People’s Review’s editorial stance.
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