Monetary Policy fails to boost investors' morale

The much-waited monetary policy launched here today could not boost the confidence of the investors leave alone the bankers.

"Due to dwindeling exports and rising bank interest rates, we had high hopes from the monetary policy," said Kush Kumar Joshi, president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI). "But the policy that was brought without waiting for the full-fledged budget to give a quick fix to the economic distortions has failed to lift the morale of the investors," he said adding that the entrepreneurs are now waiting for the budget to come for their rescue. They were hoping for the bank rates to go down, though the policy has brought down the refinancing rate to seven per cent from 7.5 per cent.

Nepal Bankers Association (NBA) president Sashin Joshi also echoed similar concern. "Controlling price hike is a challenge without complimentary fiscal policy," he added.

The 'cautious' Monetary Policy for the fiscal year 2010-11 that has based broadly on Three Year Interim Plan (2010-2013) has projected the inflation rate at seven per cent, GDP growth rate at 5.5 per cent, broad money supply at 15 per cent, Balance of Payment (BoP) at Rs 9 billion surplus and forex reserve that could be enough for six months goods and services import.

It has, as expected, relaxed the lending on housing, margin loan against the shares, import of gold and silver. But it has put 10 per cent cap on realty sector lending. "Those financial institutions that have already lent more should bring it under 10 per cent within two years," the policy stated.
Last year's Monetary policy had also targetted seven per cent inflation,which could not be met. Similarly, the growth rate that was pegged at 5.5 also could not be achieved as it remained at 3.5. The BoP was targetted at Rs 18 billion surplus, but by the 11 months of 2009-10, it is Rs 15 billion deficit.

However, this year's policy has tried to ease the Indian Currency supply. "NRB can permit financial institutions that have licence to transact in Indian Currency to open Nostro Account in Indian banks," said central bank governor Dr Yubraj Khatiwada launching the Monetary Policy.

However, it has revived the old rule of taking permission to open the bank branches. "The policy of taking permission from NRB to open new branches is regressive," NBA president said adding, "but moratorium on new bank licence is a welcome move."

Though, the Policy has stopped the licence for new banks, it is still in favour of huge infrastructure banks and upgradation of financial institutions. "However, upgradation will not only be based on paid up capital as was the practice till now," Khatiwada said. The policy has planned 'stress-test' to strengthen the financial institutions. "They also have to prepare contingency plan," it said.

The policy has not changed repo and reserve repo duration and cash reserve ratio (CRR) that is at 5.5 per cent for last two year. However, it has revised the Statutory Liquidity Ratio (SLR) upwards to maintain financial stability and liquidity. The commercial banks have to maintain 15 per cent, development banks 11 per cent, finance companies 10 per cent and D class micro-credit institutions that can mobilise deposits have to maintain four per cent SLR. However, the SLF and the cash in vault can also be calculated in the SLR, said the policy.

Policy Target

Inflation rate -- seven per cent

GDP growth rate -- 5.5 per cent

Broad money supply -- 15 per cent

Balance of Payment -- at Rs 9 billion surplus