‘Focus of monetary policy on economic growth’

Published On: July 19, 2018 11:08 AM NPT By: Republica


NRB executive director Nara Bahadur Thapa says Nepal has potential for 11%-12% growth

KATHMANDU, July 19: A senior official of Nepal Rastra Bank (NRB) has said that central bank put economic growth in priority while preparing Monetary Policy for Fiscal Year 2018/19. 

Nara Bahadur Thapa, an executive director of the central bank, said that the monetary policy is aimed at supporting the economic growth target of the government. 

“It’s all about economic growth this time. The central bank has brought the monetary policy that is consistent with the fiscal policy (budget) of the government,” Thapa, the chief of Research Department of the NRB, said, addressing an interaction on ‘Monetary Policy 2018/19’ organized by National Banking Institute on Wednesday. 

Unlike in the past fiscal years when the central bank used to focus on price stability and financial sector stability, the central bank this time has brought in expansionary monetary policy in tandem with the budget to augment adequate financial resources, including lendable funds, to support the government in meeting the growth target. The government has set 8 percent economic growth target for the current fiscal year which many economists say is ‘ambitious’.

However, NRB’s Executive Director Thapa said that the central bank believes that the growth target is attainable. 

“Many people argue that the growth target is ambitious. However, the growth target of 8 percent is not ambitious,” said Thapa. “Nepal has the potential to achieve 11 to 12 percent growth, provided that the government accelerates developmental projects and carry people along with it,” he added.

Monetary policy actions are passed on to the economy through the financial and the private sector.

According to the central bank’s calculation, private sector investment required for 8 percent growth is Rs 1,007 billion. “A key point is that fiscal imperatives also require augmenting lendable resources. Sustaining the growth momentum requires increased investment both from the government and the private sector,” he said. “Without monetary accommodation, private sector investment of this magnitude is not possible. Hence, the focus of monetary policy this time is on supporting economic growth,” added Thapa. 

The central bank has also brought a host of measures to lower interest rates, realizing that lending rates, which have gone through the roof in recent months, was dampening the private sector confidence to make investment and hampering the growth momentum. 

Among others, the central bank, through its monetary policy, has announced a cut in interest 

spread rates of commercial banks to 4.5 percent, a slash in Cash Reserve Ratio and Statutory Liquidity Ratio, and restriction on banks from offering rate higher than one percent of published fixed deposit rate, among others. 

“Both bankers and business people are for lowering market interest rates. The monetary policy for FY2018/19 will help to lower long-term interest rate,” he added. 

However, bankers say that though some measures of the NRB will help to reduce interest rates, the recurring problem of shortage of lendable fund would not go away until the central bank scraps the credit to capital cum deposit ratio.


Nara Bahadur Thapa


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