CNI’s Reaction on Monetary Policy: Control in money supply in market could increase interest rate

Published On: July 29, 2022 03:30 PM NPT By: Republica | @RepublicaNepal

KATHMANDU, July 29: The Confederation of Nepalese Industries (CNI) has said that the provisions made by the Monetary Policy are likely to put pressure on the external sector and decrease foreign exchange situation.

In its first official reaction on the Monetary Policy unveiled recently by the Nepal Rastra Bank, the CNI also said that interest rates may go much higher as the Monetary Policy seeks to control supply of money in the market.

The CNI has said that by increasing the mandatory cash balance, statutory liquidity, bank rate, policy rate, deposit collection rate, the loan interest rate will definitely increase. According to the Confederation, these arrangements will create more pressure on the existing liquidity in the market.

Similarly, it is seen that the monetary policy has taken a tight shape by controlling the loans flowing in various sectors and this will further shrink the overall demand of the market and also affect the job creation.

As the cost of credit is expensive, it will be difficult to achieve the 8 percent economic growth that the government has taken through the financial policy, so the confederation has requested to review the policy rate in the upcoming first quarter review of the monetary policy in order to coordinate the overall demand so as not to disturb the external sector balance.

Similarly, it is understood by the confederation that monetary policy has been introduced loosely for the productive sector and tight for other sectors. The confederation has demanded that the interest rate should be determined by adding a maximum of 2 percent premium to the base rate while providing loans to the private sector for the construction of information technology and industrial parks including exports, food production, livestock, and fisheries.

The confederation has demanded that refinance facilities should be provided to the tourism sector as well in the productive sectors, small enterprises, exports, and areas that have yet to recover from the Covid pandemic, and to link refinance with productivity and employment growth.