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BoP surplus to be increased to Rs 9bn inflation to be contained at 7 per cent





Kathmandu, July 29 -Nepal Rastra Bank (NRB) Wednesday unveiled new monetary policy for 2010/11 with the objective to increase the balance of payment (BoP) surplus to Rs. 9 billion within a year, The Rising Nepal reports..
The policy aimed at containing inflation to 7 per cent and increasing gross domestic product (GDP) growth to 5.5 per cent.
At a time when the country was reeling under a huge BoP deficit, double-digit inflation, surging import trade, weak lending of banks owing to liquidity crunch and sluggish performance of agriculture sector, the new monetary policy is expected to address these issues.
Unveiling the new policy, Governor of NRB Yubaraj Khatiwada said that the new policy targeted to increase the BoP surplus to Rs. 9 billion within the next fiscal year.
He said that the policy would contain inflation to 7 per cent.
Inflation rate at the global level is plummeting to single-digit, while Nepal still faces double-digit inflation, largely due to supply disturbances.
"Inflation is estimated to ease to a single-digit level with expected improvements in food and vegetable prices," he said.
The new policy targets to achieve a growth of 5.5 per cent GDP in the fiscal year 2010/011.
The new policy has put on hold the provision of establishing new commercial banks until there is a new provision. However, the provision will not be applicable to banks with foreign investment, huge capital investment and high technology base as they would help develop the physical infrastructure in the country.
However, the new policy has eased lending in the housing sector.
"The previous ceiling in housing and real estate lending has been raised for housing sector that adds a high value," the policy mentions.
The cash reserve ratio (CRR) has been kept unchanged at 5.5 percent. Likewise, the bank rate is kept unchanged at 6.5 percent.
In view of the inadequacy of compliance-based supervision in the event of growing competition, evolving new instruments and products in the financial sector, a risk-based supervision will be implemented in a planned way in addition to compliance-based supervision.
"The implementation of early warning signal (EWS) to banks and financial institutions will be further strengthened so as to enhance the efficiency of off-site supervision. In the process, Stress Testing of commercial banks will be carried out," he said.
Similarly, to maintain healthy competition among the banks and financial institutions, the new policy has set a precondition to take permission from the NRB before opening their branches.
Similarly, with the aim to divert some portion of lending of commercial banks to the energy development sector, the new monetary policy has envisioned to establish Hydropower Development Fund/Institution.
The policy has incorporated special provision to provide Rs 5 million interest free loans for a specific time period for banks opening their branches in the district headquarters of 22 remote districts listed by the government and Rs 10 million in similar loans if the branches are opened outside the district headquarters.
Similarly, the policy has made new provision to let the banks open their branches in the Kathmandu valley only after opening two branches outside the valley-- one in remote 30 districts listed by the government for low presence of the banking sector and one in other places.
The deprived sector credit requirement of 3 per cent for commercial banks has been continued. However, the deprived sector credit requirement for development banks has been increased to 2.5 per cent from 2 per cent and for finance companies to 2 per cent from 1.5 per cent.
The policy has estimated the circulation of broad money at 15 per cent. Similarly, the commercial banks’ lending to private sector has been projected to stand at 16.4 per cent and total deposit mobilization is estimated to be at 15 per cent.
However, the new policy could not cheer up the private sector. Speaking to the journalists after the programme, Sashin Joshi, president of Nepal Banker’s Association and Kush Kumar Joshi, president of the Federation of Nepalese Chambers of Commerce and Industries, remarked that the policy had nothing for the private sector to cheer about.
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