KATHMANDU: Nepal Rastra Bank (NRB) Governor Chiranjeevi Nepal will present his first monetary policy as head of the country’s central bank.
In the aftermath of the April 25 earthquake, the governor is expected to accord priority to ensuring controlled increase of credit flow for the economic revival so that inflation would also remain within the targeted limit and excess liquidity in the banking system would be addressed.
Commercial banks have lent just Rs12 billion against a deposit collection of Rs92 billion after the earthquake, suggesting slow economic activities, according to Nepal Bankers’ Association. And, the banks have excess liquidity of more than Rs100billion, according to the central bank.
The government, in the budget for this fiscal year, has announced setting up an Economic Rehabilitation Fund under the central bank for providing refinancing facilities and interest subsidy to sectors such as agriculture, business, tourism and quake-hit residential home. The policy is also expected to hike the cash reserve ratio in order to absorb excess liquidity in the banking system.
NRB sources said the policy is less likely to announce specific new measures for liquidity management but will focus more on proper implementation of existing measures.
Last year’s monetary policy had introduced new instruments such as deposit collection and NRB bond. Of the two, the NRB has been frequently using deposit collection to absorb excess liquidity along with reverse repo and outright sales of treasury bills.
One of the sources said although the bankers have suggested reducing the deprived sector lending requirement, it is likely to remain same or may get a hike.
“As the deprived sector lending could be one of the measures to reduce the excess liquidity with the banks, a hike in the requirement is possible,” the source said. “It is also expected to help boost credit through micro finance institutions for reconstruction at village-level.”
Another source said the central bank was likely to take some measures to control illegal imports of gold and rising silver imports. The policy is also likely to impose certain restrictions on silver imports, which have topped gold imports through the legal channel in recent days. According to the sources, there have also been discussions over increasing the threshold for importing goods through draft and TT.
Currently, importers can import goods worth up to $35,000 through draft and TT, and letters of credit should be opened for transactions over that amount.
