Kathmandu: Nepal Rastra Bank's (NRB) Governor, Maha Prasad Adhikari, recently defended the Monetary Policy for the current fiscal year, emphasizing its liberal approach towards bank loans, a departure from the tight policies adopted by many banks worldwide.

Addressing the post-Monetary Policy discussions organized by the IBN Media, Governor Adhikari argued that adopting a liberal economic policy was imperative given the prevailing economic scenario. As part of this policy, the interest rate has been lowered from 7 percent to 6.5 percent, a move made possible by the ease in liquidity. Additionally, the Monetary Policy aims to uplift the real estate industry.

The objectives of the policy include keeping the rise in FFIs (Financial Institutions) credit to the private sector within the limit of 11.5 percent while limiting inflation to 6.5 percent, all while pursuing a 6 percent economic growth target.

Governor Adhikari emphasized that the target of recording credit disbursements worth Rs 562 billion was not merely an ambitious goal but was determined based on careful analysis of monetary indicators, including improvements in liquidity, reduced interest rates, remittance inflow, and government budget expenditure programs.

It was noted that the previous fiscal year saw a credit growth rate of only 3 percent against a projection of 12.2 percent. Contributing factors included the government's inability to meet capital expenditure expectations, minimal economic growth, and shrinking liquidity, all of which discouraged credit expansion.

Sudurpashim's former Minister for Economic Affairs, Jhapat Bohora, advised bank and financial institutions to practice self-regulation, while also praising the new Monetary Policy for its accurate analysis of the economic situation and appropriate measures for improvement. Bohora suggested the establishment of infrastructure development banks in each province to support credit disbursement for imports and trade.

Nepal Bankers' Association President, Sunil KC, expressed support for the provision of offering a fixed deposit collection facility at a lower interest rate corridor, as it would enhance the effectiveness of interest corridor. He also highlighted the inclusion of the micro stress testing framework in evaluating asset quality, reducing credit risks, and assessing possible financial sector pressures due to economic fluctuations.

However, some experts expressed reservations about achieving the ambitious credit growth rate target set by the NRB, citing the current liquidity situation. Economist Bishwas Gauchan emphasized that credit expansion should focus on the productive sector rather than unproductive areas like real estate. Decentralizing credit expansion was also stressed as a means to ensure wider access to credit beyond big businesspersons.

Overall, the flexible policy implemented by the NRB to address the economic slowdown caused by COVID-19 has impacted various sectors, and careful consideration of credit usage is essential to drive domestic production and stimulate economic growth.