September 22, 2021, Wednesday
Nepal 1:37:26 pm

New Monetary Policy focuses on recovery of pandemic hit economy

The Nepal Weekly
August 14, 2021

Nepal Rastra Bank (NRB), on 13th August, 2021, has announced the monetary policy for the  fiscal year 2078/79 B. S. The policy is focused on promoting the industries and support revival of businesses affected by coronavirus pandemic. Announcing the monetary policy, Central Bank Governor Maha Prasad Adhikari stated that the revival loan brought into effect earlier will continue to reduce the impact of pandemic.

The policy addresses the hospitality and travel sectors such as hotels and airlines most hit by the pandemic with special provisions. Monetary policy has also paid special attention to areas that have problems in cash flow due to the COVID-19.

A new provision has been made in the policy to get additional interest in case of remittances kept in banks and financial institutions. According to Governor Adhikari, remittances have been kept in the banking system and an additional one per cent increase has been made in the current interest rate.

The monetary policy for the Fiscal Year 2078/79 has been formulated in an environment where human life and economic activities are being affected by the COVID-19 epidemic. The policy initiatives adopted to mitigate the effects of the epidemic on the economy have contributed significantly to the conduct of economic activities as well as maintained macroeconomic and financial stability.

The epidemic has created obstacles to economic development and prosperity, including social justice. The trade deficit has been widening due to rising imports, which has put pressure on the balance of payments. Foreign exchange reserves are in a favourable position. Inflation is within the target range.

The credit flow has increased significantly due to monetary and regulatory facilitation, including refinancing, concessional loans, aimed supporting the economic recovery by minimizing the impact of COVID-19. Due to the single-digit interest rate on loans, business operating costs have declined even during the epidemic.

Nepal Rastra Bank (NRB) has taken priority of encouraging electronic transactions and the need to conduct cashless transactions to reduce the risk of COVID-19 impacts, the use of electronic means in the payment of transactions has expanded rapidly in recent times. Electronic transactions have also expanded in retail shops, wholesale trade, department stores, and capital markets. This has assisted in the development and modernization of the payment system as well as increasing financial access.

According to international organizations, the flexible and exceptional policy efforts of most countries and the availability of vaccines against infection have led to the revival of the global economy, which contracted last year due to COVID-19.

The pace of economic recovery is diagnosed as still ‘much slow’ in countries that rely on tourism incomes and do not have easy access to vaccines.

The epidemic situation is still going on more efforts to address is required to continue to revive the worst-affected areas, including tourism. There is a need to provide regulatory facilitation and facilitation on the one hand for rapid economic recovery while minimizing the impact of the epidemic on economy, on the other hand, there is a need to be aware of the adverse effects on financial stability as well as external sector stability.

Considering the national and international economic scenario, the new monetary policy has been formulated in accordance with the provisions of the Nepal Rastra Bank Act, 2058 BS, as the country is being hit by the second wave of pandemic. The common minimum programs, policies, and priorities of the newly formed Deuba  government, information on the current economic situation of the country, 2078, and the third strategic plan of the central bank have also been taken as the basis for formulating monetary policy.