Monetary Policy fails to bring financial stability

The experts blamed the central bank’ for its failure in bringing financial stability, contain price hike, money supply and meet Balance of Payment (BoP) target according to Monetary Policy.
“Its inefficiency on monitoring Monetary Policy targets resulted in the failure to meet its targets,” former economic advisor of the Finance Ministry Tula Raj Basyal, here in the valley today.
“Central bank must supervise and monitor its Monetary Policy to achieve the target,” he said, adding that central bank could take immediate corrective action, had it monitored regularly.
He also questioned the authenticity of the data. “The central bank has brought the tight Monetary Policy to contain the price hike but it could not crack whip on price hike and also BoP recorded deficit,” he said, suspecting that central bank might have miscalculated the money supply.
Agreed the former governor of the central bank Deependra Bahadur Chhetri. “The central bank’s target of money supply and private sector lending by the commercial banks failed pulling the growth rate down,” he said, blaming the wider usage of Indian Currency for the failure in central bank’s calculation of money supply.
The current tight liquidity situation has to be addressed immediately to avert the systemic risk, Basyal said, adding that it would lead to the economic crisis like in other countries. Capital flight has also squeezed the liquidity from the market, he added.
However, Chhetri suggested exempting the cost of remitters to channelise the remittance to the banking sector that could help correct current deficit Balance of Payment situation. “The central bank has to be cautious while bringing Monetary Policy this year as expansionary budget — that looks from government’s mood — will ignite price hike,” he suggested, adding that last Friday of current fiscal year should be observed as ‘Black Friday’ as the day might present a rather gloomy scenario of the financial institutions.
Traditionally the last Friday of the fiscal year is the closing in the financial institutions.


Monetary Policy Target Vs Reality
Inflation -- seven per cent -- 9.5 per cent (by mid-May)
Money Supply -- 15 per cent -- 3.7 per cent (by mid-May)
Commercial banks deposit -- Rs 709 billion -- Rs 661 billion (by July first week)
Private Sector lending by commercial banks -- up by 16.4pc -- up by 11.6pc (by mid-May)
Balance of Payment -- Rs 9bn surplus -- Rs 11.67bn deficit (by mid-May)
Growth -- 5.5 per cent -- 3.47 per cent (CBS)