Experts Advocate for Five-Year Long-Term Approach in Monetary Policy Formulation

June 28, Kathmandu – Economists and banking experts have emphasized that the monetary policy for the upcoming fiscal year 2083/84 should be framed with a long-term perspective of at least five years rather than focusing solely on short-term objectives. They stressed the need for a clear, long-term policy that ensures financial stability and aligns effectively with the national budget.

Speaking at a panel discussion organized by the Nepal Economic Journalists’ Association (NAFJA) on Sunday titled “Horizons of Monetary Policy and Digital Disruption Framework,” former Federal Parliament Secretary Dr. Surendra Aryal stated that since the government’s budget lacks transformative measures, monetary policy alone cannot be expected to deliver significant outcomes.

Dr. Aryal argued that the monetary policy should not be confined to an annual cycle but instead should consider the tenure of the government and leadership of Nepal Rastra Bank, adopting a five-year outlook. He further indicated that monetary policy should not be deemed a failure merely because credit expansion falls short of expectations.

He added that while the relaxed monetary measures implemented during the COVID-19 pandemic were necessary to manage the crisis at that time, continuing such measures indefinitely would not be appropriate. He emphasized the importance of coordination between monetary policy and fiscal policy to achieve effective outcomes.

According to Dr. Aryal, the current excess liquidity problem in the banking system has not been adequately addressed by the budget. Weak capital expenditures pose ongoing challenges to achieving the desired economic improvements.

Muktinath Sapkota, Executive Director of Nepal Rastra Bank, highlighted that financial stability remains the bank’s primary objective. Although not all targets set by the monetary policy have been fully met, it is incorrect to label the policy as unsuccessful based on this alone.

Sapkota noted that despite credit expansion falling short of targets in recent years, sufficient liquidity remains in the banking system. He clarified that the refinancing facility introduced during the COVID-19 period was temporary and cannot be maintained permanently, urging industrialists and entrepreneurs to understand its intended purpose.

“The refinancing policy was included in the monetary policy of 2077 BS,” he explained. “It was provided for a specified period during COVID-19, but it cannot be sustained indefinitely.”

Devkumar Dhakal, former Executive Director of Nepal Rastra Bank, pointed out that public interest in financial sector policies is increasing and underlined the need to develop the market’s capacity to manage excess liquidity effectively.

Former Nepal Bankers’ Association President Anil Kumar Upadhyay reflected that stringent policy measures implemented in the past are now impacting the economy. Despite high credit growth during the COVID-19 period, the decline in foreign exchange reserves necessitated tighter controls, he recalled.