Overall demand has not increased due to lack of money in the hands of citizens. The cycle of cash flow of citizens (consumers) has also been broken due to the problems seen in cooperatives, microfinance and other sectors. Due to the problems in these areas, banks and financial institutions have also been affected on the one hand, and on the other hand, many young people are forced to go abroad.
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Rastra Bank has been continuously withdrawing money from the market for two and a half years. After accumulating loanable funds (excess liquidity) in the financial system, the National Bank is drawing money through various monetary instruments for management.
Rastra Bank last sent money to the market through repo on 23 Chait 2079. Since then, funds have been withdrawn from the market every week as required. According to the Rastra Bank, 319 trillion 84 billion 15 billion rupees were withdrawn from the market 1,075 times. Out of that, about 6 trillion 80 billion rupees remain (outstanding) despite returning to the market after the maturity period.
about this ex-executive director of Rashtra Bank And a brief conversation with economist Nar Bahadur Thapa :
There has been more liquidity in the financial system for about two and a half years. The National Bank is constantly drawing money to manage it. How do you analyze this situation?
Over two and a half years of excess liquidity in the market means that the economy has entered a 'liquidity trap'. This means that there is more liquidity in the economy, the interest rate is very low and in such a situation, there is no possibility to reduce the interest rate or it is not possible to accelerate the economy by reducing the interest rate.
Monetary policy does not work after a country is in a severe liquidity trap. In order to make the economy sustainable, the system has been relaxed including increasing the limit of real estate purchase, reducing the risk burden of share loans, increasing the limit of individual share loans, working capital loan guidance and blacklisting. But the current problem will not be solved by these arrangements. These arrangements may provide relief to certain borrowers but will not improve the economy as a whole. These are just arrangements brought in to cover up that we will improve the economy.
The state is not doing what it should do but blaming other agencies including Rashtra Bank, working capital loan guidelines etc. But why the credit in the market did not expand? Why is money accumulating for a long time? It has not been effectively discussed.
What are the ways to overcome this situation of the overall economy and financial system?
Overall demand has not increased due to lack of money in the hands of citizens. The cycle of cash flow of citizens (consumers) has also been broken due to the problems seen in cooperatives, microfinance and other sectors. Due to the problems in these areas, banks and financial institutions have also been affected on the one hand, and on the other hand, many young people are forced to go abroad. This has reduced the overall demand. This situation should be improved.
In order to increase the market demand, the consumption tendency of citizens should increase. At present, private investment has not increased. Therefore, the only way to solve the problems of the economy is to increase government spending. Investments are of two types – one, motivated by profit
s are induced and others are not profit-driven (autonomous). Private sector investment in particular is profit driven. As there is no possibility of profit in the current situation, it is not likely to increase. Therefore, the government should increase the 'autonomous' investment to a large extent. It is the government to save the system, the state, the country. Domestic and foreign investors are attracted only when the government accelerates the economy by increasing investment.
Then, in which areas should the government increase investment?
First of all, the government has to pay the arrears due to the obligation. For example, the government should immediately pay the dues of sugarcane farmers, health insurance, corona insurance, interest subsidy, agricultural insurance premium, export subsidy, construction business etc. Due to the payment of dues, the money goes to the market, so it reaches the hands of the citizens and the economic activity runs. After that, the government should increase investment in projects that give quick returns.
Since the beginning of the current financial year, there is more than 10 trillion excess liquidity in the financial system. As July is coming to an end, the demand for credit does not seem likely to increase. Can this situation be understood as a sign that the banks are only hoarding money this year?
loan demand has not increased. It is also said that many borrowers do not pay interest at all. Some say they have paid interest and debt. It is heard that many of them have taken loans from banks and paid the principal and interest. Such credit expansion does not contribute to economic growth, nor does it contribute to national capital formation. There is no possibility of improvement in the present situation unless there is demand for credit from the real sector.
What can the National Bank do to improve this problem?
National Bank cannot do anything. The government will take the lead in solving the current problem. National Bank and other agencies will only assist or facilitate the work of the government.
