The National Bank has brought the monetary policy for the coming fiscal year by setting aside the fundamental problems of the economy. The monetary policy made public by Governor Bishwanath Poudel on Tuesday did not clearly address the issue of facilitating loans to the private sector, such as shares, real estate and vehicle loans, which are of interest to the general public.  

Governor Poudel said that a flexible monetary policy has been introduced easily as all the policies and programs adopted in this year's policy have been continued.   However, experts have commented that the monetary policy has not been able to address the main problems of the economy, including the accumulation of loanable funds (excess liquidity) in the financial system for a long time, the pressure on the capital fund has reduced the ability of banks to lend due to pressure, the repayment capacity of borrowers has decreased due to circumstances, and the stock market has declined.  

There should have been more clarity on the issues within its boundaries and jurisdiction, and the monetary policy has given a clear signal that the power to solve the existing problems of the economy lies in the government's 'court': Chiranjivi Nepal, former governor The monetary policy aims to expand loans to the private sector by 11 percent to help achieve the 7 percent economic growth target set by the government. But the monetary policy is silent on how the target of credit expansion will be achieved. Despite low interest rates and sufficient liquidity, not even half of the target has been flowed in credit for the past few years. In the fiscal year 2081/82 and the current year, the target of 12.5 percent credit expansion was set, but it has barely reached 6 percent. In such a situation, experts say that there is no basis for credit expansion by 11 percent next year.

Economist and former Executive Director of the National Bank, Nar Bahadur Thapa, says that monetary policy is unaware of the problems of the economy. 'There is nothing new in monetary policy, the policy has not been changed.' It cannot solve any of the existing problems of the economy,' he said, 'The policy should have found solutions to the problems of the economy within its scope. A monetary policy without a message has come.'

Thapa says that the fragmentation of the monetary policy document has reduced the attractiveness of stakeholders. He was commenting on the fact that the National Bank made the monetary policy review report, the macroeconomic report and the monetary policy for the fiscal year 2082/83 public separately. 'Since the monetary policy mechanism is not working at present, it should have been improved by monetary policy,' he said, 'Despite the money, the credit flow has not increased. Due to capital fund pressure, banks are not in a position to invest more than three to four billion. To solve these problems, some options should have been included in the policy. The difficulties of the banks should have been alleviated. That could not happen .’

Thapa says that this issue should be included in monetary policy as the budget and monetary policy have not been effective due to lack of coordination between monetary policy and budget.  ‘There is a problem of cash flow when there is effective coordination between monetary policy and fiscal policy.  Money has accumulated in the accounts of the three levels of government, but the treasury of the federal government is negative,’ he said, ‘For this reason, monetary policy should have said something in solving the problem of fiscal cash flow .’

While making the monetary policy public, Governor Poudel of the Nepal Rastra Bank said that credit will expand by eliminating the situation of unlimited liability created by personal guarantees as security for loans and reducing the situation of blacklisting due to cheque dishonor and hindering access to banking services.  ‘The Governor of the Nepal Rastra Bank has the right to introduce a policy as per the need within his jurisdiction by getting it passed by the Board of Directors.  But in the past, monetary policy was taken outside his jurisdiction and brought in chaos . This had high expectations from stakeholders regarding monetary policy,' he said. 'This time, an attempt has been made to correct the past imbalance and bring monetary policy within its scope.'

Former Governor Chiranjivi Nepal commented that although the NRB wanted to make monetary policy a policy-specific policy, some issues were not clear. 'The policy has been short, simple and focused only on policy rates.' This is a new and good practice,' he said. 'However, there should have been more clarity on the issues within its limits and jurisdiction.' Nepal said that the monetary policy has given a clear signal that the power to solve the existing problems of the economy lies in the government's 'court.'

The NRB wants to eliminate the situation where unlimited liability is created by personal guarantees. This means that currently, if a company has five partners and the organization has taken a loan of Rs 50 million, all the partners must personally guarantee an amount equal to the loan. If the company fails to repay the loan, all personal guarantors will also be blacklisted as they have unlimited liability. This arrangement is being sought to be removed through monetary policy.

Similarly, the Rastra Bank will facilitate the process by creating a separate procedure regarding loans flowing to the industry, said Satyendra Timilsina, Head of the Research Department of the Rastra Bank. ‘Separate guidelines will be made regarding interest waivers or loan restructuring, rescheduling, etc. in the case of sick industries,’ he said. ‘In this way, on the one hand, the bank’s debt will be recovered, and on the other hand, the bank’s ability to provide additional loans will also improve.’

The existing system of blacklisting in monetary policy has also been simplified. Currently, about 75 percent of those on the blacklist are dishonored checks. Although the Rastra Bank wants to further relax this arrangement, its policy arrangements have not been disclosed. Although the monetary policy talks about reviving credit based on pressure, nothing has been revealed about how to do it.

There is nothing new in monetary policy, it cannot solve the existing problems of the economy, it should have found solutions to solve the problems of the economy within its scope, a monetary policy without a message has come: – Nar Bahadur Thapa, former executive director, Rastra Bank Nepal Chamber of Commerce President Kamlesh Kumar Agrawal said that in the current situation where the economy is sluggish, the target of 11 percent credit expansion set by the monetary policy has narrowed. ‘The target of 11 percent credit expansion is narrowed at this time,’ he said, ‘The policy has argued that the problem of the economy is a fiscal policy, so the problem should be solved through government spending reform.’

Rewat Bahadur Karki, former executive director of Rastra Bank and chairman of the Banking Sector Reform Suggestion Task Force, said that it seems that the monetary policy was brought without sufficient homework. ‘Many things should have been done, including reducing micro-regulation, improving the loss system for bad loans, and facilitating banks under pressure from the capital fund. Nothing was clearly stated in the policy.’ He says that even though the policy only talks about loan classification, not much has been done.

Similarly, the National Bank has stated that the share collateral loan limit will be determined based on the strength of the company in loans provided against shares. Currently, there is a provision for loans up to 70 percent of the shares pledged as collateral in share loans. Officials of the National Bank claim that this arrangement will allow more loans to be obtained than the current arrangement when loans are provided against shares of companies with good financial condition. However, despite low interest rates and sufficient liquidity, the stock market is continuously declining.

Former President of the Stock Brokers Association Narendra Raj Sijapati said that although he did not say anything clearly about the stock market itself, since the monetary policy has come in a new structure, many things will come through the policy throughout the year. 'It is clearly stated in the monetary policy that a policy will be introduced from time to time as per the need,' he said, 'Therefore, there is no need to suspect that the policy was not clearly stated.'

Former President of the Nepal Land and Housing Development Federation Bheshraj Lohani said that the monetary policy did not directly address the real estate sector. 'It has been said that the government will expand credit to the private sector by 11 percent to achieve the 7 percent economic growth set by the government,' he said, 'There may be some policy arrangements for this credit expansion. That will also facilitate the credit flowing to real estate.' In addition, there has been confusion because there has been no policy specifically targeting the real estate sector like in the past.’

‘Although the target of economic growth appears high in the current situation, the estimated economic growth rate can be achieved if the economic reform programs initiated by the Government of Nepal improve the investment environment in the private sector, increase the government’s capacity to spend capital, and the external economic conditions are favorable,’ the monetary policy states. ‘While external supply-related pressures on inflation are increasing, the expansion in domestic demand is also expected to put some pressure on inflation,’ the monetary policy states.

The Rastra Bank projects that inflation will remain within 5.5 percent in the fiscal year 2083/84, with the expectation that inflationary pressures will continue for a few months due to supply-related increases in the prices of petroleum products and food items, but will decrease from the fourth quarter of the upcoming fiscal year.’

It is claimed that the current liquidity and interest rate situation in the monetary sector will help in economic expansion. As the fiscal policy proposes public spending expansion, income tax reduction and economic reform programs, it is estimated that this will increase aggregate demand and consume liquidity as the overall economic activity expands. However, it is estimated that the challenge seen in liquidity management will remain as additional liquidity flows from remittance inflows, tourism income, public spending, etc.

It is prepared to conduct open market transactions in such a way that the weighted average interbank rate of banks and financial institutions, which is the operational target of monetary policy, remains unchanged and the interbank rate remains around the policy rate. For this, it is said that different instruments of different duration will be used for structural liquidity and regular and emergency liquidity management depending on the nature of liquidity.

‘Policy rates under the interest rate corridor, the fixed deposit facility rate and the bank rate have been kept unchanged.’ The existing arrangements regarding the mandatory cash ratio, statutory liquidity ratio and permanent liquidity facility have been continued,' the policy states, 'to facilitate the management of liquidity flows through foreign currency purchases, commercial banks will be encouraged to invest in foreign government bonds and a policy arrangement will be made to carry out sterilized intervention at the time of foreign currency purchases.'

In cases where there are signs of systemic risk in any sector of the economy, the practice of using macroprudential regulation tools will be continued based on the experience that monetary policy alone is insufficient to mitigate such risks.