Promising Monetary Policy

The unveiling of Monetary Policy for the current fiscal Year 2024/25 on Friday by the Nepal Rastra Bank (NRB) has raised hopes that the major issues plaguing the economy since the COVID-19 hit will be sorted out. That the private sector has unreservedly endorsed it and reacted cheerfully is a testament that the policy will effectively steer the ailing economy towards recovery and then to significant growths if implemented in letter and spirit. 

The policy has announced a reform on stance on real estate lending, loans to Small and Medium Enterprises (SMEs), maintaining that lending to the manufacturing sector would be promoted and the quality of loans would be improved to maintain financial stability. By doing so, the NRB has duly recognised the sector's colossal problems and shown its commitment to addressing them. As part of its efforts to help revive or even grow demand for domestically manufactured goods, it has laid out its plan to tame inflation and enhance the availability of credit to ensure people have the money needed to buy them.     

What's more, in order to facilitate enterprise development in areas like industries that support agriculture, information technology and tourism, the provision of not charging more than a 2 per cent premium on the base rate for SMEs of up to Rs. 20 million will be reviewed to expand the facility in those areas. It also aims at maintaining the foreign exchange reserves sufficient to cover the import of goods and services for seven months, down from 12.6 months at present. When implemented, this step ensures that the surplus reserves would be released to the market from banks, easing the availability of cash.  

Through the policy, the central bank has finally responded to the acute problem of credit crunch experienced for the past two fiscal years to make sure that the credit keeps flowing and also its demand – by cutting interest rates banks charge on their loans to their customers with the intention of enhancing market liquidity and supporting economic activity in a low-inflation environment. Low interest rates incentivises investors to borrow more money and pour it into markets, creating abundant jobs. To make things more congenial, the policy has duly acknowledged the frictions dragging down the construction sector. To lift the sector's spirit, the monetary policy has extended the interest payment deadline for contractors to November. The government has repeatedly defaulted on timely paying many of the contractors which has really hit them hard, and left many construction works incomplete. But to their delight, the policy is keen and determined to solve this. 

The central bank has also increased the foreign exchange limit for Demand Draft/Telex Transfer facilities when importing goods to $50,000 from the existing $35,000. By rolling out these and more measures, the monetary policy aims to raise the economic growth rate to 6 per cent, which is quite decent. In yet another good news, the central bank has said it would provide collateral-free loans to migrant workers based on the assurance that remittances would be sent to the bank accounts in their home country. This novel measure can be a godsend for those keen and eligible to go abroad as migrant workers but are held back by the lack of money. It removes the obstacle and offers those unemployed or under-employed at home a chance to earn handsomely abroad and invest that money at home in things that generate better value in the future.