NRB Governor Khatiwada "There will be some fine-tuning in monetary policy"

NRB Governor Khatiwada "There will be some fine-tuning in monetary policy"
Republica, 20-Mar-2010
Prem Khanal

The government on Friday appointed Dr Yuba Raj Khatiwada as the governor of Nepal Rastra Bank, the central bank of the country. Immediately after the announcement, myrepublica.com talked with Dr Khatiwada on current economic problems and his strategies to comfort with them.

How do you feel to be appointed as the governor of Nepal Rastra Bank?

I feel that I am returning to my home where I have spent almost all my career. I am happy that the government has entrusted me with the responsibility of managing the central bank that has been facing some problems in recent months.

Though there was some delay in announcing the appointment, I want to thank the government for providing the opportunity. Given my academic specialization, I am confident that I can contribute a lot in enabling the central bank to deal with the emerging problems in the monetary front by maintaining its stability.

What are the major opportunities and challenges at present?

The confidence that the government has shown on me by providing me the opportunity to bring in changes at the central bank, where there are a lot of rooms for reforms, is a big opportunity for me.

As far as challenges are concerned, the first one is to raise credibility of the central bank by improving its capacity and performances, and enabling it to function professionally.

Likewise, double-digit inflation, high balance of payment deficit and low economic growth rate that all have posed a major threat of stagflation is another challenge of the economy for some time.

So, the challenge is to slightly curb imports of luxurious items through policy reforms but to ensure adequate flow of liquidity in the productive sector that can boost growth rates.

What will be your plans and strategies to deal with the situation?

The strategies will be to take immediate actions to deal with the problems that have been seen in the monetary sector like raising the credibility of the central bank and establishing the central bank´s role as the main advisor to the government. There is also the need of management of human resources by adopting a policy of right man at the right place and boosting the morale of central bank employees.

Likewise, achieving monetary stability by maintaining financial discipline and good governance, increasing financial accessibility to those who have been deprived from such services and initiating groundwork to define the role of central bank in federal state structure are some of my priorities. Selective use of monetary tools to control price rise and boost economic growth will be other strategies of the central bank.

Apart from strengthening the monitoring and supervision capacity of the central bank, there will also be attempts to bring other financial institutions that are not under the supervision of central bank under its net.

How do you see current economic problems?

Yes, there are some problems. But I am confident that all problems are curable provided that there are due treatments in place. I agree that we are not in a position to achieve double-digit growth rate, but we can achieve fiscal and monetary stability.

As far as high inflation is concerned, high expansion of money supply seen over the last two years also contributed to rapid price rise. But we also need to see the supply constraints.

The NRB will be careful that there is no high inflation due to higher money supply and for that there will be some fine-tuning in the monetary policy that includes some restrictions on the loans that go into unproductive and luxurious sectors.

As far the liquidity crisis, I think there is enough liquidity in the economy but it is not coming into banking system. So, the challenges for coming days for the banking system is to adopt policy to mobilize more deposits by strengthening its credibility and I think this is a powerful tool to address the problem of liquidity.

Will there be review in the temporary restrictions on opening up new banks?

The number of bank itself is meaningless.

The real meaning is whether or not there is enough accessibility of common people to banking services and healthy competition in the banking system. If the penetration of banks is low, there can be a review and the number of financial institutions can be increased to match with the rise in economic activities. But the decision should be made on convincing reasons.

There is also a need to strengthen supervision and monitoring capacity of the central bank at least at the same pace of banks´ expansion.