The Monetary Policy for the fiscal year 2009-10 has opened the borders for domestic banks. They can now open branches outside the country.
Sounding a note of caution on the inflationary budget, the Monetary Policy Nepal Rastra Bank (NRB) to be announced tomorrow has offered a slew of suggestions to the government to control the price hike.
"The policy is flexible and can be adjusted according to the situation," said a source at the central bank. "It will take all possible measures to contain inflation and stabilise economy," the source said adding that inflationary pressure has been rising due to the food prices hike based on non-financial reasons.
The central bank has prepared the Monetary Policy for this fiscal year while aiming at keeping inflation -- hovering at 13 per cent -- at a manageable level of seven per cent and to achieve 5.5 per cent economic growth as envisioned by the budget for the fiscal year 2009-10. But, given the experience of last fiscal year when the country witnessed a historic price hike, the people doubt the present government's capability to bring the price hike under control.
One of the major tools to curb price hike is to squeeze liquidity from the market. However, it is bringing a flexible policy and will not adjust Cash Reserve Ratio (CRR) that was increased last fiscal year to 5.5 percentage points from five per cent in the hope of containing the price hike.
Instead, bankers have urged the central bank to reduce CRR as according to them they are facing liquidity crunch.
"There is no liquidity crunch in the market," scoffed Kishore Maharjan, CEO of Sunrise Bank, citing the example of latest 91-day Treaury Bills that sold like hot cakes.
The CRR is the portion of deposits that banks have to keep with the central bank.The last Monetary Policy failed to contain the price in the last fiscal year. In a mid-term review of the last fiscal year's Monetary Policy, NRB governor Deependra Bahadur Kshetry had accepted the failure of the Monetary Policy to curb the price hike.
Earlier this morning, an NRB board meeting passed the Monetary Policy. As an advisor to the government, the central bank brings the Monetary Policy annually after the budget.