New monetary policy to focus on inflation

New monetary policy to focus on inflation
ekantipur, 9-Jul-08

With a major focus on curtailing the swelling inflation that is already close to 10 percent, Nepal Rastra Bank is all set to bring out its Monetary Policy for the next fiscal year, even though the government is deferring on the announcement of a new fiscal budget.

A high ranking government official told the Post that the central bank is making all the necessary preparations to announce its annual monetary policy in the third week of July. "As per the NRB Act, we will make the monetary policy public on the usual time despite the fact that the government is delaying the announcement of a new budget," said the official.

He further said that as the central bank can amend its monetary policy anytime, it will do so if the policies or provisions of the upcoming budget contradict with NRB's monetary policy.

He said that the major focus of the new monetary policy would be to deal with the rising price level, though the central bank has limited policy options. Since rising inflation is a global phenomenon, domestic policy can hardly make any remarkable impact to keep the inflation level within a desired level.

However, he dropped hints that there will be no change in the existing bank rate and Cash Reserve Ratio (CRR) to squeeze liquidity to control inflation, as there is neither a liquidity crunch nor excess liquidity to fuel the inflation. "Curtailing money supply in the name of limiting inflation will hurt growth prospects and that is something we don't want," he said.

He further said that the upcoming monetary policy would take measures to increase interest rates on deposits to provide some relief to the depositors, who are facing a negative interest rate.

"Higher interest rates on deposits will also help curtail consumption," he said and added that there will not be any remarkable impact on investment even if the lending rates go up by one to two percentage points.

The official said that the monetary policy is less likely to announce any major policy changes for promoting exports and added that there are hardly any measures that can be announced to promote the sector. The monetary policy, among others, will also announce the full-fledge implementation of the Basel II, an advance account keeping tool for financial institutions aimed at raising the quality of financial transactions up to international levels and promote more transparency.