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| Kathmandu, Wednesday July 17, 2002 Shrawan 01, 2059. |
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NRB unveils monetary policy
for FY 2002/03
Post Report
KATHMANDU, July 16:In a first-ever annual
Monetary Policy and Programmes after the enactment of Nepal Rastra Bank Act 2058 that was
unveiled today, the central bank has slashed down the mandatory Cash Reserve Ratio (CRR)
by one percentage point to accelerate the sluggish economy by injecting extra capital.
The policy level change regarding CRR is in line
with flexible monetary policy of the central bank adopted since last fiscal year to boost
the fragile economy, which would come into effect with the onset of new fiscal year. As
per the new provision, the CRR would be brought down to 6 and 3.5 per cent for saving and
current deposits and fixed account liabilities respectively from 7 and 4.5 per cent. As a
result of CRR cut, the central bank expects that an extra capital worth Rs 1.85 billion
would released from the NRB’s vault of the central bank.
Releasing the annual policy, Dr Tilak Rawal,
Governor of NRB, expressed the hope that the extra injection of capital would be helpful
in lowering cost of fund, which ultimately will bring down the existing lending rates of
the commercial banks. He was, however, hopeful that such a lowered cost of fund
wouldn’t drag down the deposit interest rates.
The policy, among others, sketches a plan of
tuning other major economic variables to achieve budgetary economic growth target of 4.3
per cent for the upcoming fiscal year. "To achieve the target and to realize a
surplus of Rs 3.5 to 4 billion in the Balance of Payment by limiting the inflation rate
within 4 per cent, the growth rates of broad and narrow money supplies in the coming
fiscal year would be12 and 11.8 per cent respectively," said Dr Rawal. He was also
quick to stress that the central bank has taken due consideration in maintaining the
inflation rate within the desired level while fixing growth rates of money supply for
coming year.
He also said that the new policy would continue
the earlier plan of transferring the management of two largest ailing commercial banks to
the private sector. "Despite some obstacles, the management hand-over process would
be completed within the first four months of the coming fiscal year," he stressed.
Establishment of Asset Management Company (AMC),
which would be a concrete step to address the soaring Non-Performing Assets (NPAs) in the
banking system would be within the coming fiscal year, states the policy. The policy also
unveils its plan to issue directives related with Loan Information Bureau and Anti-money
Laundering Act in coming fiscal year.
In order to ensure autonomy in monetary policy,
the central bank has recently signed an agreement with the government under which the
total amount of annual overdraft to the government should not exceed 5 per cent of the
total revenue mobilization of the previous fiscal year.
"If the amount exceeds the limit, it would
be immediately brought within the limit by converting it into treasury bills and the
government is also compelled to repay the overdraft within specific time," says the
policy. In order to encourage private parties’ more participation in the banking
business, the NRB would accept applications to establish new commercial banks from the new
fiscal year.
Responding to the long-due demand of the
development banks, the new policy allows the development banks to operate saving accounts,
albeit it should be less than the total authorized limit of resource collection and the
deposited amount would not be allowed to withdraw through cheque.
The new policy has also announced a plan to
manage long-term funds necessary to intensify and diversify its priority sector
investments by allocating five per cent of gross profit of the NRB. The mandatory priority
sector investment scheme from commercial banks would be scrapped in the coming five years
and such role would be extended to development banks and micro credit programmes.
With an aim to gear up the inspection and
supervision capacity of the central bank nation-wide, a policy of establishing inspection
and supervision offices would be adopted and such an office would be materialized in
Chitwan within the coming fiscal year.
According to the new policy, the NRB will issue
financial cooperatives and micro-credit directives in coming fiscal year. In line with the
policy of withdrawing direct representation of central bank in the board of directors of
private commercial and development banks, such appointment would be scrapped. The
privatization of the regional development banks would be accelerated from the coming
fiscal year under which shares of the banks would be gradually sold to private sectors.
Similarly, the new policy also plans to bring
inflows of remittance through the banking channels with greater participation of private
sectors and to encourage foreign employment, the NRB would take necessary measures to
simplify the flow of low-interest loans from commercial banks.
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