‘Maintaining price stability is NRB’s responsibility’

Nepal Rastra Bank (NRB) should work for maintaining price stability, whereas the government should shoulder the responsibility of propelling growth, according to experts. As rising inflation means decline in value of money, the central bank has to crack the whip on inflation to maintain the value of money and keep it stronger, according to Head of the Central Department of Economics under Tribhuvan University, Ram Prasad Gyawali. In the budget for Fiscal Year 2016/17, the government has targeted to contain inflation under 7.5 percent, whereas the economic growth has been targeted at 6.5 percent. However, the economic growth and inflation targets have been eluding the government for the past couple of years due to various reasons. The government has failed to meet economic growth and inflation targets in the current fiscal year as well. Though the government had targeted 6 percent economic growth in the current fiscal year, the Central Bureau of Statistics (CBS) has estimated that the economy will grow by 0.77 percent only. Likewise, inflation is hovering above 10 percent almost round the year even though the government had set a target of containing inflation below 8.5 percent in Fiscal Year 2015/16. Generally, banks are offering 1-3 percent interest on savings account. Inflation above 10 percent means a depositor will lose Rs 7, even after adding interest income, in his deposit of Rs 100 in a year. Nepal Bankers Association (NBA) President and CEO of NMB Bank Upendra Poudel echoed Gyawali. “The central bank has to focus more on taming inflation,” he added. The government and the central bank do not accept double-digit inflation as the failure of Monetary Policy. “Though they blame supply side constraints and  non-economic reasons for exorbitant market price hike, it is the failure of the Monetary Policy,” Gyawali said, suggesting that the central bank bring a tight Monetary Policy to contain inflation below the target. “The government has targeted to contain inflation at 7.5 percent in the coming fiscal year. There is every possibility of contain inflation at single-digit, if the central bank brings tight Monetary Policy by adopting open market operation policy,” he added. He further added that the central bank, through its Monetary Policy, should manage financial chaos created by the government through its fiscal policy. Due to rising inflation, depositors have been reluctant to keep their money in banks and are turning to share market which has been offering better returns compared to banks. If the Monetary Policy marginally increases bank rates, the excess liquidity, which is fueling the inflation, can be controlled and the interest rates will go up, which would eventually attract more deposit in the banks, and also curtail capital flight. “People will be encouraged to deposit as they get comparatively more return,” added Gyawali. The lending rates have been below the inflation, which is ridiculous, according to Sanima Bank’s CEO Bhuwan Dahal. “Neither the lender nor the borrower is benefitting,” he added. Source: Republica