In the discussion program held in Kathmandu, NRB Governor Chrianjibi Nepal said that the policy will create measures to support and achieve targets outlined in the Budget for FY 2018-19, which covers economic growth, inflation projection, infrastructure and agriculture goals.

“The budget for Fiscal Year 2018-19 has set targets on the basis of the country’s improving business and economic climate in the last couple of years. The monetary policy will try to capture this momentum of growth in the country which will lead to achieving the set economic growth and development targets,” said Nepal Governor.

The governor also mentioned that the monetary policy will create certain measures to arrest inflation within the targeted 6.5 percent range and put stability in the financial sector first.

Experts Take On Policy
Former Finance Minister Madhukar SJB Rana opines that the Central Bank should look to solve key monetary issues like people’s access to financial institutions and lack of stability in financial policies through the new policy.

Former NRB Governor Dipendra Bahadur Kshetry insists the Central Bank should not only work towards creating support measures for accomplishing the budget’s goals, but also enhance the regulatory framework.

“The Central Bank has mandated banks to inject at least 25 per cent of their total loan portfolio to various identified productive sectors. But are banks lending as per this provision?” Kshetry asks.

Nepal Bankers Association President Gyanendra Dhungana says that the monetary policy should be flexible to ease capital formation in the country.

Dhungana adds that the policy should create a measure that encourages mergers between banks and financial industries and increase the overdraft facility limit for business loans, currently at 15 per cent.

Nepal Financial Institutions Association (NFIA) President Saroj Kaji Tuladhar thinks that the policy should cater to the margin lending issue in the secondary market. He persuaded the Central Bank to increase the loan-to-value ratio by 10% on housing loans since the current monetary policy has squeezed housing loans.

Nepal’s Monetary policy was unveiled on June 11^th, 2018 addressing several issues concerning Nepal’s finances which included the exchange rate hedging facility for foreign investors who seek to make investments in the country’s infrastructure sector.

Through this policy, the Central Bank will make more room for FDI and help the government achieve its targeted economic growth of 8 percent.

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Stakeholders say that the country will need more than Rs 500 billion in the next fiscal year to meet the targeted economic growth rate of 8 percent.

Taking into perspective the targeted growth rate, they said that the suggested expansionary monetary policy will keep the money flow in the market and curb interest rates. Both of these aspects are important factors for achieving the targeted growth rate and keeping inflation within the targeted 6.5 percent.

“Amid lack of adequate investment funds, it will be tough for the government to achieve the targeted economic growth rate in 2018-19. In such a situation, the central bank should draft a monetary policy that is as expansionary as possible even if it adds to the inflationary pressure to some extent,” says Gyanendra Dhungana, President of Nepal Bankers Association (NBA).

Dhungana further asked the central bank to consider getting rid of the credit-to-core Capital Plus Deposit (CCD) ratio limitation in the banking sector through the enaction of the monetary policy explaining that liquidity could be restrained even by maintaining the Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR).

What Key Stakeholders Said

Private sector representatives present at the meeting encouraged NRB to address various lapses of the budget that have eaten away at the business sector through monetary policy.

 “Among others, the government’s policy to scrap the VAT rebate system on different essential goods and the inability of the budget to ensure stability in interest rates in the banking sector are discouraging. The monetary policy should address these bottlenecks of doing business in Nepal,” says Shekhar Golchha, Senior Vice-President of the Federation of Nepalese Chambers of Commerce and Industry.

The Vice-President of Nepal Chamber of Commerce (NCC) Kamalesh Kumar Agrawal also expressed his views on the plan saying that the monetary policy should also facilitate production and supply of goods.

Kumar stressed on the need to limit interest rates within the 9 percent limit on loans in the banking sector, redefine productive & non-productive sectors and permit the usage of high-denomination Indian currency in the domestic market.

Speaking to the members, Nara Bahadur Thapa, Executive Director of NRB, said that the monetary policy for FY 2018-19 will focus on:

• Accelerating the present economic growth momentum
• Narrowing down the trade deficit
• Increasing the flow of loan to Small Medium Enterprises (SMEs)
• Controlling rising interest rate
• Increasing public access to financial services

“The market is already witnessing inflationary pressure and it will likely increase in the next fiscal year. The monetary policy will be prepared by adopting cautious measures to control inflation,” says Thapa.

Addressing the event, NRB Governor Chiranjibi Nepal said that the monetary policy will fuel the budget’s target of achieving the expected economic growth in FY 2018-19 and restricting inflation to 6.5 percent.

“Nepal has witnessed an economic growth rate of over 6 percent for two consecutive years despite political instability and frequent changes in government. As the country now has a stable government and the supply-demand situation is improving, the 8 percent economic growth target in 2018-19 is achievable,” says Chiranjibi.

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