Monetary policy cannot address all the problems faced by borrowers: Governor

KATHMANDU: Nepal Rastra Bank (NRB) has said that the monetary policy for the upcoming fiscal year 2024/25 will focus on the government’s new generation reforms outlined in the budget.

Speaking at a pre-monetary policy discussion organized by the Society of Economic Journalists Nepal (SEJON) on Tuesday, Governor Maha Prasad Adhikari said that borrowers, who have taken excessive loans, are expecting a more accommodative monetary policy. “Despite understanding that the COVID-19 pandemic, when the central bank provided different facilities, was an exceptional circumstance, borrowers are still expecting solutions to their debt obligations through monetary policy,” Adhikari said, cautioning that the trend of borrowing beyond one’s capacity could lead to future problems.

Adhikari also said that monetary policy has its limitations and cannot address all the problems faced by borrowers.

The governor also said he was aware of lenders paying commissions for sanctioning bank loans. “This is a financial crime. It is a matter of serious concerns for both banks and financial institutions, and the central bank,” Adhikari stated. “I have instructed central bank officials to take immediate and necessary actions to control such practices.”

Adhikari added that central bank was focusing on directing credit to the agriculture, energy, and SME sectors to boost production and productivity. “Although banks may find opening letters of credit and facilitating trade more profitable, NRB is committed to increasing loan expansion to these sectors in line with the government’s policy of enhancing domestic production,” he added.

Also speaking at the event, Finance Secretary Madhu Kumar Marasini said that the upcoming monetary policy would be aligned to support the budget’s objectives and programs. Stating that the banking system holds over Rs 600 billion of investable funds, Marasini emphasized the need for capital injection into the economy.

Marasini suggested that the monetary policy should not be overly restrictive, given the high demand for investment in the economy. “The new monetary policy should focus on addressing past weaknesses and moving forward,” he added.

Likewise, economist Dr. Bishwanath Poudel said the focus of the central bank should be on the proper utilization of liquidity in the financial system. “The lack of credit growth, despite having sufficient liquidity, has prevented the economy from becoming dynamic. This has put pressure on government revenue, as the government is the largest buyer in the economy,” he added.