While the government is preparing a program to increase economic activities through the next year’s budget, Nepal Rastra Bank (NRB) is also set to review the third quarter of the current year’s monetary policy by Wednesday.
The government, which has given a positive message by getting the interest rates on deposits reduced through the Nepal Bankers Association, also wants to send some message through the monetary policy review by the central bank.
According to Finance Minister Dr Prakash Sharan Mahat, discussions are being held with NRB for a loose monetary policy. He has also changed the Finance Secretary to have his influence on the review to be passed by the Board of Directors of the central bank. There is a legal provision that the Finance Secretary is an ex-officio member of the NRB Board of Directors.
To be a member of the Board of Directors of NRB, one must take an oath from the Chief Justice of the Supreme Court. Newly appointed Finance Secretary Arjun Pokharel is yet to take the oath. A position of director is also vacant at present. The review will be made public after Secretary Pokharel takes the oath. Pokharel is likely to take the oath today.
Finance Minister Dr Mahat, who is facing a wide budget deficit despite limited resources, is of the opinion that if there is some facilitation from the central bank, the market will run and the government’s public finances will improve as a result. In order for the relationship between the Ministry of Finance and the NRB to remain smooth as in the past, he has brought Dr Gunakar Bhatta, head of Banks and Financial Institutions Regulation Department as an advisor.
The finance minister wants the monetary policy review to address some issues immediately. Sources claim that he openly conveyed some of his wishes to NRB Governor Maha Prasad Adhikari. The finance minister’s advisory group members Dr Bishwo Paudel and Dr Poshraj Pandey also held talks with the governor about the government’s expectations.
“What the government wants now is some policy flexibility. By doing that, there is no need to compromise on financial stability,” said the source, “There is no need to be tight all the time. According to him, if few things are addressed in the monetary policy review that will be made public within a few days, the morale of the market would be strengthened and the investment environment would also be improved.
At present, the liquidity with the banks is increasing. There is also an improvement in remittance income. The external sector is getting stronger. Interest rates have gone down. However, the environment for investment has not been created. There is no demand for loans from banks.
“This is due to weak morale,” the source said, “In the context that the data released by the National Statistics Office has confirmed that the economy has shrunk due to morale weakening, NRB should play a positive role.”
It is necessary to adopt some flexibility in the construction sector to make the economy run immediately. As the government sector is opening up gradually, it is being analyzed that industries like cement and steel rods will run when the entrepreneurs are facilitated with loans.
Similarly, it is also necessary to review the trading limits of institutional investors, especially banks and financial institutions, by making a slight change in the strategy taken towards the stock market. The government wants that the industrialists and small businesses invested in the productive sector should be facilitated in paying loans and interest. Governor Adhikari has also said that he will be flexible on some issues.
The Economic Research Department of the NRB has prepared the entire ‘outline’ of the monetary policy that will be made public within a few days, according to the sources.
