Private Sector Deems Current Monetary Policy Ineffective in Reviving Economy
The private sector has jointly concluded that the monetary policy for the current financial year 2080/81, announced on Sunday by the Nepal Rastra Bank (NRB), cannot effectively address the challenges faced by the existing economy. The Nepal Chamber of Commerce (NCC), Confederation of Nepalese Industries (CNI), and Federation of Nepalese Chamber of Commerce & Industries (FNCCI) released this collective assessment yesterday.
Although the monetary policy aims to tackle issues such as high interest rates, low demand, cash flow problems, reduced production and job cuts, as well as the declining morale of the private sector and postponement of new investment plans, the private sector believes that the measures taken by the central bank do not seem sufficient to lift the economy out of recession.
The private sector expresses concerns about achieving the government's economic growth target of 6 percent set through the budget, as the monetary policy for the current financial year has reduced the target for loans to the private sector from 12.6 percent to 11.5 percent.
Expecting initiatives to control the increase in high interest rates through the monetary policy, the private sector was disappointed with the reduction of only 0.5 percent in the policy rate while keeping the bank rate unchanged. They suggest the central bank use all available tools to reduce the base rate of the bank through the directive.
The private sector proposes that the 1.3 percent loan loss regime imposed by banks and financial institutions on good loans should be maintained at 1 percent again. They also call for allowing industries or borrowers affected by decreased demand to reschedule and restructure their loans with the agreement of banks and borrowers. Moreover, refinancing facilities should be made available with low interest premiums. Failure to address these suggestions in the monetary policy may hinder the economic viability.
Although the monetary policy mentions a necessary review in the current capital loan guidance as per the demand of banks and financial institutions, the private sector fears that allowing banks and businessmen to decide on this may discourage the private sector, similar to the outcome of last year's capital loan guidance.
While appreciating some positive aspects of the monetary policy, such as increasing the first residential house loan limit and reducing the risk burden for share mortgage loans, real estate, and hire purchase loans, the private sector expresses uncertainty about the extent of the risk burden reduction.
Overall, the private sector believes that the monetary policy lacks clear provisions to increase confidence in the economy, especially in a time of extreme despair. It urges for more robust measures to support the productive sector and boost the economy in the present challenging environment.
Read here:
