Suggestions from the Private Sector on Monetary Policy: What are the Demands?

The Confederation of Nepalese Industries (CNI) has presented various suggestions to the central bank for the formulation of the monetary policy for the fiscal year 2081/82. CNI's recommendations focus on core monetary policy measures, macro-prudential measures, and structural reforms.

Core Monetary Policy Measures

CNI suggests that the central bank's policy rate should be made more effective by ensuring that bank interest rates align with the central bank's objectives. Despite reductions in the policy rate, banks have not consistently applied these changes.

Statutory Liquidity Ratio

CNI recommends maintaining the statutory liquidity ratio at 12% for banks and 10% for other financial institutions for the time being. Considering the potential for liquidity shortages, they also suggest that this ratio be reduced as needed.

Benchmark-Based Interest Rate Determination

CNI proposes that Nepal adopt advanced options for determining bank interest rates, moving away from the current base rate practice, in line with international practices. For instance, India implemented the External Benchmark-Based Lending Rate (EBLR) in 2019, which directly reflects the central bank's policy decisions.

Macro-Prudential Measures

CNI believes that the 0.5% counter-cyclical capital buffer (CCB) currently enforced by the central bank is inappropriate under current conditions and should be suspended. They also recommend reducing the limits on directed lending and improving loan loss management.

Structural Reforms

CNI suggests reforms in the board of directors of the Nepal Rastra Bank, the formation of a separate committee for monetary policy formulation, and the establishment of an asset management company. These reforms are deemed necessary to strengthen the central bank's supervisory role and maintain financial stability.

Conclusion

The suggestions presented by CNI to the central bank for the monetary policy 2081/82 aim to enhance the discipline, stability, and efficiency of the financial sector. Implementing these suggestions is expected to have a positive impact on the country's economic growth.