Kathmandu, July 10
Nepal Rastra Bank, the central regulatory and monetary authority, will unveil the Monetary Policy 2018-19 tomorrow, introducing a provision whereby domestic banks will be able to hedge against convertible foreign currency by borrowing from foreign banks.
The central bank has opened a borrowing facility from foreign banks to meet the credit requirement in the production and infrastructure sectors. However, banks are reluctant to make use of this facility because of the exchange rate risk due to lack of a forward contract.
According to central bank sources, the country must bring in capital to address the current challenge of the credit crunch.
“There are expectations among the general public that the central bank will intervene on the lending rate, but as per our understanding, the interest rate will come down to an ideal position and stabilise only when the banks have enough funds to lend,” a high-level source at the central bank who is privy to the monetary policy formulation told THT.
“The problem of lending rates rising is not because of lack of monetary instruments. It is due to lack of loanable funds, which is why the central bank will try to create an environment to bring in funds from foreign countries,” the source added.
The Monetary Policy is also expected to bring down the cash reserve ratio from six per cent of the current fiscal to five per cent, eyeing the liquidity scenario. The monetary policy for the next fiscal will narrow down the weighted interest spread rate from five per cent. Lending capacity of the banks has gone up along with an increase in paid-up capital and the income of banks from interest rate spread has gone up substantially with the rise in the volume of loans on an annual basis.
The Financial Sector Development Strategy of the government has also envisioned narrowing down the weighted interest rate spread.
To curb chances of financial fraud, the central bank will introduce a provision of full-audit of major branches of commercial banks. Full audit compliance is expected to enhance financial discipline in banks, according to NRB sources.
Though there had been debates about forceful mergers of banks, the central bank will not introduce any provision regarding the forceful merger, sources have confirmed. “The monetary policy will encourage the merger of commercial banks, but not in a forceful way.”
In the context of commercial banks not being able to meet the priority sector lending mainly in the agriculture sector, the monetary policy is likely to extend a year’s period for banks to meet the priority sector or productive sector lending provision.
Moreover, sources said the monetary policy would ease the provision of margin lending due to the depression witnessed in the stock market.
Written by Sureis
This news first appeared on https://thehimalayantimes.com/business/monetary-policy-to-be-unveiled-today/ under the title “Monetary Policy to be unveiled today”. Bolchha Nepal is not responsible or affiliated towards the opinion expressed in this news article.