KATHMANDU: The Confederation of Banks and Financial Institutions Nepal(CBFIN) has concluded that it is challenging to implement the recently unveil monetary policy (2022/23) and achieve its goals. “It will be challenging to maintain economic stability, keep the price increase within the limits, and keep the foreign currency reserves stable when there is a negative impact on Nepal’s economy due to various developments in the external sector” reads a press release issued by the CBFIN. The statement also says the monetary policy is posing a challenge to increase investment in the productive sector in order to maintain the balance of payments and substitute the declining imports due to the weak production system.
Liquidity management challenging
An increase in the bank rate, a rise in the limit of mandatory cash reserve ratio and the statutory liquidity ratio, revision of import margin, and contraction of credit flow limit are some of the provisions that are making liquidity management further complicated, the statement states.
The statement also says that expanding investment in the productive sector, substituting imports, and building a self-reliant economy will be more challenging, adding that it is expected to reduce the return on investments made in the banking and financial sector and so on. However, the statement acknowledges that suggestions regarding classifying loans flowing from banks and financial sectors and maintaining different interest rates for loans meant for the productive sector and business have been addressed in the monetary policy. The monetary policy envisages encouraging the flow of credit to the productive sector, prioritizing export promotion, and providing various services and facilities based on evidence that remittances have been brought into the country through formal channels. The statement also expresses confidence that the monetary policy will increase access to credit for small-medium domestic enterprises and other productive sectors including agriculture and exports. The CBFIN also has expressed hope that the monetary policy can yield positive results in maintaining economic and financial stability and bringing the economy back to normal amid growing concern over negative key economic indicators.