Former NRB Guv sees space for expansionary monetary policy

Kathmandu, July-1 Former governor of Nepal Rastra Bank (NRB) Yuba Raj Khatiwada has said that the central bank has enough space to pursue expansionary monetary policy for the coming fiscal year to meet and mobilize the immense resources required to fund reconstruction projects.

Expansionary monetary policy refers to the central bank's policy that focuses on increasing money supply in the economy.

Speaking at an interaction organized by Nepal Bankers Association (NBA) in association with Society of Economic Journalists-Nepal (SEJON) on Tuesday, Khatiwada opined that as macroeconomic fundamentals are on the positive direction, the central bank can also go for credit expansion policy in 2015/16. "There is adequate monetary space for the central bank to adopt the expansionary policy," he added.

He also said that the recent pledge of US$ 4.4 billion for reconstruction made in the recently held International Conference on Nepal's Reconstruction will help to meet the resource gap for reconstruction in the aftermath of the devastating earthquake. "Mobilizing foreign source means it will bring international technology, fund and foreign exchange reserve which might not be possible from the internal source," said Khatiwada.

He, however, was quick to caution the government on preparation of the upcoming budget on the basis of donors' pledges. "It would be too early for the country to bring budget on the basis of resources committed by the donors. There should be some monetary instruments in the armory of the central bank," he said. "Financing from the internal revenue is not a problem. However, the central bank should be alert if financing is being done from the net money creation."

Khatiwada was of the view that the government should make internal borrowing in the current fiscal year to generate resources for reconstruction works. "This could be the right time for the government to make internal borrowing since there is excess liquidity surplus and the interest rate is also low. The cost might get higher in the next fiscal year," he added.

Source: Republica