NATIONAL 9 (Spotlight Weelky)]

Economic Prescription

The business community says the central bank's new measures are inadequate

By A CORRESPONDENT

Governor Rawal : Tough decision to take

In a bid to revive the country's sagging economy, Nepal Rastra Bank (NRB), the central bank, announced new fiscal measures Thursday. According to the bank, the compulsory cash reserve ratio (CRR, the amount commercial banks keep as deposits with the central bank) has been cut by one percentage point and bank rates (the rate of interest the central bank charges from the commercial banks) by one and two percentage points with immediate effect.

As per new regulations, the commercial banks must have 7 percent of the national current and savings deposits in the form of minimum compulsory cash reserve ratio. In April 1998, the central bank had slashed the CRR from 12 percent to 10 percent on an average. NRB Governor Dr. Tilak Rawal said the central bank had designed new measures to make a positive impact on the national economy without affecting economic stability. The cut in CRR is expected to pump in nearly Rs 2 billion into the national economy, which the commercial banks then could finance on industries, tourism and exports, he

said.

Though the NRB's decision was being anticipated for quite long, bankers said the monetary measures could not help. "We welcome the NRB's decision," said Narendra Bhattarai, chairman of Nepal Bankers' Association. "The central bank should assess the impact of its decision and further slash the CRR," he added.

As expected, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) welcomed the liberal monetary policy measures announced by the NRB. "We hope the liquidity flow of nearly Rs 2 billion expected to be pumped in the market will have some positive impact on the economy provided the capital is invested in Nepali industries," said Binod Bahadur Shrestha, acting president of the FNCCI.

The apex private sector chamber also welcomed the cuts in the interest rates of export credits and refinancing rates as ëpositive step' but stressed that not only the policy measures need to be effectively implemented but also the industries must have an easy access to such credits. "The government should introduce a complete package to inject life in the economy and rescue the export, tourism and manufacturing sector," said Shrestha.

According to the NRB announcement, the ratio of cash in vault is three percent, as earlier. Previously, the commercial banks had to keep a reserve of eight percent in cases of current and savings accounts and six percent in the fixed account. The central bank has cut the refinancing rate on the convertible currency export loans by two percent. According to new rules, the central bank has fixed refinancing rate (for commercial banks) on industrial rehabilitation loans at three percent, down from 4.5 percent.

Similarly, the bank rate on the loans for rural development banks and Nepalese currency export has been brought down to 4.5 percent from the earlier 5.5 percent.

Responding to a question, Governor Dr. Rawal said the release of cash in market would not activate inflation. The central bank has estimated that inflation will remain at around 5 percent during the current fiscal year. The rate of inflation stood at 3.5 percent in the year 1999-2000, which declined to 2.4 percent in 2000-01. Officials said the new measures had been introduced after studying the poor performance of the country's economy in the first four months of the current fiscal year. "The objective of this initiative is to provide loans to industries and businesses at lower interest rates," said Dr. Rawal.