Friday, July 13, 2018

SC issues interim order against Monetary Policy

The Supreme Court today issued an interim order against the implementation of Monetary Policy 2018-19.
The central bank has brought Monetary Policy for the current fiscal year. But advocate Swagat Nepal has filed a writ against the policy arguing that the provision allowing banks to obtain loans in Indian currency should be removed.
A joint bench of acting chief justice Deepak Raj Joshi, justice Om Prakash Mishra, justice Cholendra Shamsher Rana, justice Kedar Prasad Chalise and justice Ishwor Prasad Khatiwada issued the interim order and asked the central bank to provide clarification within a week and appear for a discussion on July 27.
The Nepal Rastra Bank (NRB) has on Wednesday brought Monetary Policy allowing banks to borrow in Indian currency and convertible foreign currencies up to 25 per cent of their core capital. Assuming that the banking industry currently has a combined core capital of Rs 320 billion, the Monetary Policy move will allow the banks to obtain loans amounting up to Rs 80 billion from the foreign sector.
The central bank allowed commercial banks to borrow in convertible currency from foreign banks based on the authority provided by the Foreign Exchange (Regulation) Act 1962 in April. The central bank has allowed banks to borrow in Indian currency too as there was no risk of fluctuations in the exchange rate.
Though, the central bank’s move was aimed at easing the shortage of loanable funds by injecting liquidity in the market, the writ petitioner claimed it to be against Nepal Rastra Bank (NRB) Act.
Advocate Nepal has argued that the Monetary Policy provision violates NRB’s Act to Provide for Enhancement of the Circulation of Nepalese Currency 1957. He pleaded that the new provision could bring instability in interest rates besides other problems, if India demonetises its currency like last year.
According to Nepal, it also violates the norms of the International Monetary Fund (IMF) that allows maintaining Special Drawing Rights (SDR) only in currencies such as the US dollar, pound sterling, euro, Japanese yen and Chinese yuan.
The central bank though has claimed that the provision could help ease the shortage of Indian currency (IC) – that is in high demand for trading with India as it is the major source of imports for Nepal – Nepal argued that it would deplete the US dollar reserve that is needed to buy IC.

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