June 16: The former governors of Nepal Rastra Bank (NRB) have suggested the central bank to give continuity to strict monetary policy. Speaking at an interaction on monetary policy organised by the Nepal Management Association on Thursday, they said that the tight monetary policy of the current fiscal year has prevented the economy from going into crisis and emphasized that this policy should get continuity for some more time.

Former Finance Minister and Governor Dr Yuba Raj Khatiwada said that the cooling period of monetary policy has not ended and it should be continued for some time.

"Though foreign exchange reserves have increased slightly due to the strict monetary policy, inflation is still close to 8 percent," he said, adding, "So, the cooling period of monetary policy is not over. Please be careful." He advised the banks to increase investment.

Stating that it is not possible to expand credit flow by 20-30 percent as in the past, Khatiwada said that even if loan disbursement is increased by 12 percent, the target of 6 percent economic growth set by the budget will not be achieved.

He was of the view that businessmen should not be allowed bank operators and suggested the concerned bodies to set a demarcation, which he also tried during his tenure.

“For this purpose, an arrangement can be made to sell some parts of the founding shares,” suggested Khatiwada.

He said that the spread rate of the banks has been reduced from 9 percent to 4 percent and it is not necessary to reduce it now.

Khatiwada added that the practice of fixing the interest rate through the association of banks is not appropriate and requested to correct it. Khatiwada said that there is a problem in the economy due to the inability to regulate microfinance companies and suggested to increase monitoring by forming second tier institutions soon.

He also suggested that CRR and CD ratio should not be used in the current situation.

Meanwhile, former Governor Ganesh Bahadur Thapa said that the continuation of strict policies is necessary when the economy is in trouble. "There has been some improvement due to the introduction of tight monetary policy," he said.

Another former governor Dr Tilak Rawal suggested bringing a balanced monetary policy. "There is a need to be aware of the external and internal situations of the economy," he said.

Former Governor Dipendra Purush Dhakal also suggested that tight monetary policy saved the economy of the country and urged the central bank to give continuity to strict measures.

Stating that only 10 to 12 banks are enough in the country, he emphasized that the policy of merger should be continued.

Another ex-governor Dipendra Bahadur Chhetri said that the banks have not been able to extend loans in the productive sector and suggested to pay attention to this.

During the interaction, former president of Nepal Bankers Association Gyanendra Dhungana said that when there is a decline in economic activities, many customers are unable to pay loan installments and interest. According to him, this situation should be addressed by the monetary policy.

Suyog Shrestha, chairman of Development Bankers Association, demanded that the development banks should also be allowed to open LC.

Meenraj Kandel, president of the National Cooperative Federation, said that the monetary policy should also cover the cooperatives sector.

Meanwhile, the private sector businessmen emphasized on the need for expansionary monetary policy.

NRB Governor Mahaprasad Adhikari made it clear that the upcoming monetary policy cannot provide facilities provided during the time of Covid-19 pandemic. He said that the side effects of the facilities given during the Covid-19 situation are now visible and that it needs to be corrected.

“The monetary policy will be decided accordingly,” said Governor Adhikari.