Governor justifies tightening monetary policy
KATHMANDU, AUG 1:
The central bank governor insisted on the need to tighten the monetary policy in order to control price rise brought on by heightened money supply. “The monetary policy had to be tightened this time as money supply was approaching 20 per cent putting inflation control under pressure during this stage of liquidity surplus,” said Nepal Rastra Bank (NRB) governor Dr Yubaraj Khatiwada, justifying the one percentage point hike of Cash Reserve Ratio (CRR) to six per cent, during an interaction programme organised by Independent Business News to discuss this year’s monetary policy.
“NRB aims to maintain CRR at a certain range so that it neither leaves a lot of money out in the open nor does it increase the cost of fund for banks,” he added. He also dismissed fears that the policy stands taken by this year’s monetary policy will not be compatible with the full budget which will be tabled later in the year.
“As the financial advisor to the government, NRB is always in the loop with the government’s target and capability, so the monetary policy is designed accordingly,” said Dr Khatiwada, adding that the monetary policy can be revised anytime based on monetary dynamics.
The governor pointed out that if banks do not maintain their spread rate under an acceptable range, NRB will use ‘persuasive measures’. “There is no scope for supernormal profits in any competitive market but banks have enough space to garner normal profits by lending to prime clients,” he said.
He expressed that Nepal is opening for capital account convertibility by allowing banks to make small investments in foreign countries but as for Nepali companies, NRB will allow on need basis but it is still a long way to go due to legal reasons.
President of Nepal Bankers’ Association Ashoke Rana expressed that in the absence of good returns in alternative investment for banks, they are unable to reduce interest rates. “The 28-day treasury bills yield a mere 0.0091 per cent which means that on an investment of Rs one billion it will give a return of Rs 7000. Such a low return is discouraging banks to reduce lending rates,” he said.
He insisted on bringing a policy regarding liquidity monitoring framework and interest rate corridor soon to provide a reference rate so that interest rates remain at an acceptable level. Having said that he pointed out that the banks have to look for borrowers and manage their portfolios, and the high interest rate is not an obstacle.
“NRB needs to assure banks that it is okay to flow funds to the housing sector now as the exposure of the banks to the sector is less than 15 per cent on average which is less than the central bank’s directive, while the whole sector has become stagnant due to absence of funds,” said president of Nepal Land and Housing Developers’ Association Ichhya Raj Tamang.
Economist Dr Chiranjibi Nepal questioned the possibility of maintaining inflation at 7.5 per cent only. “When all external and internal factors are showing that prices will increase further, NRB might need to revise the target later,” he said.
Source: THT
