Monetary policy expected tomorrow: What could be in store for the market?

ShareSansar, July 18:

Nepal Rastra Bank is announcing the monetary policy for the new fiscal year 2071/72 within a few days. And, if the indications from various reliable sources are anything to go by, the market stands to benefit from the new monetary policy.

“The monetary policy will most probably be announced tomorrow,” central bank spokesperson Bhaskar Raj Gyawali told ShareSansar today. But he did not give other details.

According to a highly placed source privy of the development, however, the new monetary policy is going to pave the way for the establishment of sectoral banks with high paid-up capital for the development of infrastructure, energy and agro sectors, inter alias.

“But don’t expect this monetary policy to open the license for regular commercial bank for a couple of reasons,” the source added. “Firstly, the policy direction of the central bank is enough to understand that it wants to reduce the number of such BFIs through merger or acquisition, and secondly, it is still studying the possibility whether or not new commercial banks should be allowed to open.”    

When asked about the implementation of BASEL III, the highly placed government source only said that since the country has international obligations under BASEL III, it will be gradually implemented.

“But always remember, notwithstanding BASEL III, the central bank will continue to direct the BFIs to shore up their paid-up capital as per their business volume and risk exposure,” he added.

The source, who is well aware of the development at the central bank, also said that the monetary policy will not have hard-hitting impact on marginal lending as some media organizations are claiming.

“All we can say at this point is that the issue of marginal lending depends on how it affects the financial health of BFIs. You will have to wait till Friday to know how exactly it will be address in the monetary policy,” he says.

Nonetheless, he went on to add that the central bank may adopt a policy to tighten the provision that allows transfer of share loan from one BFI to another.

Sources say that the new monetary policy may, however, slightly increase CRR rate owing to surplus liquidity in the banking system.

“The policy is may also increase CRR rate by 0.5 for the BFIs to mop up excess liquidity in the system,” the highly placed source said without giving details.  

So far, the CRR ratios for the commercial banks, development banks and finance companies stand at 5, 4.5 and 4 percents respectively.

The last time the central bank had raised the CRR rates was through the monetary policy of the last fiscal year 2069/70.

But the stakeholders in the stock market say that raising the CRR rate marginally should not be much issue as such as the BFIs are already struggling to mobilize loan.

“If you look at the bright side, increased CRR means better financial health for the BFIs in a longer run, and thereby better returns,” says chairperson of Nepal Investors Forum Raj Kumar Timilsina.