July 30: Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari has said that the Monetary Policy for the current fiscal year came with a review of the overall existing scenario of the nation's economy.

"The policy prioritizes a liberal approach in terms of the interests of bank loans when most of the banks in the world adhere to the right policy," he said.

In his address to the post-Monetary Policy discussions organized by the IBN Media on Sunday, the Governor argued that there was a compelling ground to opt for a liberal economic policy.

The interest rate has been lowered from 7 percent to 6.5 percent. This liberal policy was taken upon analyzing the prevailing situation. One of the contributing factors for this reduction is the ease in liquidity, according to the Governor who said the Monetary Policy also aimed to uplift the real estate sector.

He went on to say that the Monetary Policy aims to keep the rise in BFIs credit to the private sector within the limit of 11.5 percent and limit inflation to 6.5 percent by pursuing  6 percent economic growth.

Stating that the NRB has set a target of recording credit disbursements worth Rs 562 billion and this target is not determined by the ambitious mindset, he said instead it is based on the analysis of monetary indicators. He claimed this figure is calculated based on the improvement in liquidity, reduced interest rates, the situation of remittance inflow and the programs to improve the expenditure of the government budget. 

It may be noted that last fiscal year, BFIs credit to the private sector rose by 3 percentage points against the projection of 12.2 percent.

The NRB stated that the government's inability for capital expenditure as per the expectations, minimum economic growth and shrinking liquidity were major contributors to discouraging the expansion of credit disbursements.

On the occasion, Nepal Bankers' Association President Sunil KC said that if the Rs 562 billion target of loan disbursement was centered on production-based and small and medium-scale industries, it would contribute to improving the economy.

He said the provision to offer a fixed deposit collection facility at a lower interest rate corridor aiming to increase the effectiveness of interest corridors is positive.

The Monetary Policy includes the provision of bringing the micro stress testing framework in evaluating the quality of assets in the banking sector, reducing the credit risks, and assessing the possible pressure in the financial sector due to overall economic fluctuations, said KC.

"The monetary policy has accommodated issues like the facility of permanent deposit collection, bringing the micro stress testing framework and the development of the central consumer identification system that would associate the national identity card with the central consumer identity (centralized KYC) system," he said.

Former banker Analraj Bhattarai cast his doubt over the achievement of the economic growth target set by the government.

NRB Executive Director Prakash Shrestha stressed the need for increasing the size of capital expenditures and stimulating the market to meet the target of loan expansion.