July 22: Nepal Rastra Bank (NRB) is preparing to tighten the screws on economic activities through the monetary policy amid high Balance of Payments, declining foreign exchange reserves,  rising inflation and lack of investible capital (liquidity crisis) in the banking system of Nepal.

Although the business community is expecting some concessions as the economy is struggling from the impacts of Covid-19 and the Russia-Ukraine War, the Nepal Rastra Bank (NRB) has hinted that the monetary policy will maintain strict fiscal discipline.

Stating that the concessions given in the past were the reason for the economic crisis at present, officials of the central bank argue that they will take corrective measures through the monetary policy.

“Although the economic activities have increased due to the liberal policy adopted by the central bank in the past, it has not helped in bringing the economy back on track,” said an NRB official, adding, “Now, the main objective of the monetary policy will be to take corrective measures.”

NRB says that banks and financial institutions were aggressive in credit flow after in the aftermath of the Covid-19 pandemic but most of the loans disbursed during that period were invested in unproductive sector. As a result, outflow of money from the country caused a decline in foreign exchange reserves as well as deposit collection of banks. Therefore, the monetary policy will now focus on increasing domestic production and reducing imports.

NRB is likely to reduce the interest rate on loans disbursed to the productive sector from the current fiscal year. The budget for the current fiscal year has also announced lower rates for loans to the productive sector and priority projects of national level and the monetary policy will further ensure these provisions are  implemented.

According to sources at the central bank, the monetary policy will increase the bank rate and refinancing rate which in turn will increase the overall interest rates but it will also provide relief to the agriculture sector as well as small and medium scale industries by fixing premium rates in their favour.

NRB Spokesperson Dr Gunakar Bhatt informed that the monetary policy will be unveiled by the central bank on Friday (July 22) after the board meeting on Thursday decided to introduce the new monetary policy. According to media reports, the monetary policy will be unveiled at 4 pm today afternoon.