Money
Bankers urged to apply best-practice monetary policy
Nepal Rastra Bank on Sunday urged bankers to implement best-practice monetary policy, which is crucial to boost capital from the private sector, in order to accelerate economic growth.Nepal Rastra Bank on Sunday urged bankers to implement best-practice monetary policy, which is crucial to boost capital from the private sector, in order to accelerate economic growth.
The central bank’s top officials said that when business loans are more affordable, companies can expand to keep up with consumer demand which then stimulates market demand and drives economic growth.
For this, the Nepal Rastra Bank (NRB) has adopted an expansionary monetary policy to address the interest rate but failed to tame the upper limit.
Since 2016-17, the central bank has been enforcing a flexible interest rate corridor.
Through this fiscal year’s monetary policy, the NRB made revisions to fix the interest rate corridor system to restrain the soaring interest rate. But after it failed to implement best-practice monetary policy, it led to the recent interest rate war among banks—high interest rate on both deposit and loan.
NRB Executive Director Nar Bahadur Thapa said there was a need to implement the good international practice in the country’s monetary policy. “By adopting the best-practice monetary policy, the financial market can also be more market driven.”
Despite the central bank adopting a number of monetary measures, the capital formation has appeared dismal. As of last fiscal year, the capital formation in fixed factor stood at 34.1 percent of the country’s GDP. The capital formation from the state and the private sector stood at a mere 7.8 percent and 26.3 percent of the GDP respectively.
As per the government statistics, capital expenses stood at around 80 percent in 2017-18, out of which, over 32 percent was spent during the last month of the fiscal year.
Capital expenditure had reached a mere 12.46 percent as of mid-December this fiscal year. Similarly, the private sectors are struggling to get loans to finance their projects as the banks claim that they are witnessing a shortfall of loanable funds and are reluctant to provide credit apart from charging high interest rate.
“With the slow growth of the capital market, the private sectors are utilising very few instruments of capital market to generate investment for their business. Rather, they are largely dependent on the money market for the purpose,” said Thapa, adding that the monetary policy can play a vital role in that context.