Nepal Rastra Bank announced the monetary policy for the financial year 2079/80 on Friday afternoon.
Every year, sometime after the release of the budget, the central bank releases the monetary policy.
While announcing the monetary policy, the central bank governor said that the policy has been carefully tightened.
Rashtra Bank Governor Mahaprasad Adhikari said that the monetary policy has been made keeping in mind the international economic scenario, the Russia-Ukraine war, the increase in fuel prices, and the trend of import and remittance income.
He said, “It seems that the pressure on prices and the external sector will continue for some time. Therefore, keeping in view the scenario and the goal of economic growth, the direction of the monetary policy has been cautiously tightened.”
Now, especially in Nepal, the inflation rate has reached about 8 percent and it has been seen that the foreign currency reserve has also come under pressure.
The interest rate of loans provided by the Central Bank to other banks has been increased by one and a half percent to 8 and a half percent.
Officials of the bank said that their intention is to reduce the loan for import work.
Experts say that monetary policy provides policy clarity to achieve the government’s economic goals. But do you know what monetary policy is and how it is formulated?
What is monetary policy?
One of the most important resources for any nation is financial resources.
The former governor of Nepal Rastra Bank, Dipendra Bahadur Chetri, says that the monetary policy is a policy that aims to strengthen the payment system by maintaining production, employment and financial stability of the country.
“It talks about interest rates and it talks about exchange rates as well. The goal of monetary policy is to operate everything and create a conducive environment for the economy to operate smoothly,” he said.
How does it affect the economy?
According to economist Keshav Acharya, generally speaking, monetary policy determines the value of the currency.
Therefore, the policy announced by the central bank indirectly affects the general consumer, producer, or employee.
“Monetary policy seeks to provide stability of goods or services,” Acharya said.
“Making capital expensive or cheap, making the national currency stronger or weaker relative to international currencies depends on monetary policy.”
According to the experts, the monetary policy is formulated to maintain the balance of the economy by making the financial policy publicized by the government as a basis for all sectors of the economy.
Monetary policy has an impact on the interest rate that is set when a person borrows from a bank, trades, or deposits in a savings bank.
Similarly, the role of monetary policy is considered to be mentioned in inflation i.e. market price.
In Nepal, a year and a half ago, ordinary people used to get loans at 7 to 9 percent, but now that rate has increased to a minimum of 12 percent on average.
Similarly, the interest rate which was six to seven percent in one year term last year has now reached 11 percent.
This is due to the lack of lending resources with banks and the increase in people seeking to do business with loans.
As demand is higher than supply, the cost of capital has increased.
Similarly, the Nepalese currency has weakened against the US dollar compared to last year. Last year, one US dollar was pegged at Rs 121-122, which is now above Rs 128.
According to Acharya, the reasons for the weakening of the Nepali currency are the balance of payments deficit, the decrease in foreign exchange reserves, and the weakening of the Indian rupee, which has a fixed exchange rate with the Nepali rupee.
“Monetary policy has an impact on all these. This policy does not directly affect one class or consumer. It affects indirectly,” he added.
The employees’ salary has been increased by 15 percent in the budget.
How is monetary policy different from the budget?
Monetary policy focuses on interest rate-related issues while budgeting focuses on revenue growth.
Through the budget, the government publishes policies to achieve results by spending according to the target.
“The budget mostly talks about income and expenditure,” Chetri said.
As it is also seen as an economic-political document, populist programs are also included in the budget.
It is believed that the role of monetary policy will also be mentioned in the market inflation
Then the program expenses will make it challenging to maintain the value of the currency.
Goods and services will remain stable but the availability of money will increase the price in the market.
“Inflation means we cannot maintain the value of money,” Chetri said.
As the role of the central bank is to maintain the value of the currency, it is said that it will announce the policy to balance the market through the monetary policy.
The government has also taken up issues that are directly related to the common people through fiscal policy.
Looking at the overall situation of the budget and the economy, it has been estimated that a relatively tight monetary policy will be announced for the current financial year.
Is this a supplementary budget policy?
It is said that the central bank will remain autonomous in matters related to monetary matters.
He can set his own policy.
But also look at the budget released by the government