As Nepal's economy grapples with the challenges of a deep recession, it is imperative for Nepal Rastra Bank (NRB) to adopt a proactive approach and leave no stone unturned in revitalizing the nation's financial landscape. The monetary policy for 2023/24 unveiled on Sunday exhibits a cautious flexibility towards the private sector, but there are concerns that it may not be enough to drive the economy back on the right track. The current policy does address certain issues, such as allowing banks to issue loans against real estate, automobiles, and shares, but it falls short of meeting some of the demands of the private sector, which has expressed dissatisfaction with some of its provisions. Monetary policy, being the main framework of the central bank to regulate the country's money market, is of paramount importance in steering the economy towards stability and growth. As such, the NRB's measures should encompass effective money supply management, appropriate interest rates, and the skillful utilization of monetary instruments. While the new monetary policy has reduced the risk weightage on loans for the construction of residential houses and margin lending, it has maintained a cautious stance on policy rates, despite calls from both the private sector and the government to lower interest rates significantly. A notable decrease in interest rates could stimulate investment and consumption, spurring economic activity in various sectors. Therefore, the central bank should seriously consider the concerns of the private sector and explore the possibility of implementing more substantial interest rate reductions.

Another major policy change adopted by the monetary policy is the reduction in private sector lending to 11.5 percent from the previous year's 12.6 percent ceiling. However, the actual private sector lending in the fiscal year 2022/23 hardly surpassed six percent. The private sector, therefore, raises legitimate concerns about the adequacy of this cap to support the government's targeted economic growth rate of six percent. The NRB must balance its cautionary measures with the necessity to facilitate economic growth, ensuring that the private sector has access to adequate credit for expansion and investment. NRB Governor Maha Prasad Adhikari has rightly emphasized that a flourishing financial sector without commensurate growth in the real sector could lead to instability. In this light, the current monetary policy's focus on channelizing private sector lending into productive areas is commendable. However, the private sector needs more clarity on how this channelization will be carried out effectively. The policy must outline concrete steps to encourage banks to finance productive and viable projects, thereby stimulating economic growth in key sectors.

Furthermore, the financial sector, microfinance institutions, and cooperatives have been facing issues of mismanagement. It is essential for the NRB to address these problems promptly and devise policies that ensure the stability and reliability of these institutions. Confidence in the financial system is crucial for attracting investment and promoting economic activities. Amidst the challenges faced by the economy, Nepal is also compelled to follow the guidelines of the International Monetary Fund (IMF) that impose the Extended Credit Facility. While adhering to these guidelines is necessary, it should not hinder the NRB from taking decisive action to address the underlying problems of the economy. The central bank must strike a balance between external obligations and domestic priorities to foster sustainable economic growth. The policy should be designed to instill confidence in the market and create an enabling environment for investment and business expansion. This can be achieved through clear communication and comprehensive guidelines that promote economic activity.

The current economic situation in Nepal demands a robust and decisive monetary policy that leaves no room for ambiguity. The NRB must take the private sector's concerns seriously and address them by formulating comprehensive and well-targeted measures. Lowering interest rates, providing greater clarity on channelizing private sector lending into productive areas, and resolving the mismanagement issues in the financial sector are critical steps towards revitalizing the economy. The Federation of Nepalese Chambers of Commerce and Industry, the Confederation of Nepalese Industries and Nepal Chamber of Commerce have articulated their dissatisfaction with the monetary policy and raised valid points that warrant consideration. As we move forward, we hope that the NRB will carefully analyze and respond to these concerns by conducting quarterly reviews of the monetary policy, implementing appropriate measures to inject much-needed vibrancy into the economy. A resilient and dynamic economy can only be achieved through collaborative efforts between the private sector and the central bank, working towards the common goal of fostering sustainable growth and prosperity for Nepal.

 
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