CRR increase to stay for now: NRB

Acting governor of Nepal Rastra Bank Krishna Bahadur Manandhar has ruled out any immediate reversal of the increase in Cash Reserve Ratio (CRR) amid renewed pressure from bankers to withdraw the decision.

"Reliable indicators show that the market has enough liquidity at the moment. Thus the recent rise in CRR will have no immediate adverse effect on the market," Manandhar said at an interaction organised by the Nepal Chamber of Commerce (NCC) entitled "Global Economic Crisis and its Impact on the Nepalese Economy".

Governor Manandhar further said that though this posed no direct risk to the domestic economy, he urged banks to be cautious about big borrowers who might have made heavy investments in foreign stock markets illegally.

"It is likely that some of them might have lost hefty sums in the recent share market crash, thereby eroding their capacity to repay loans and putting lending banks in trouble," he said.

Nepal Bankers' Association President Radhesh Pant urged the central bank to rethink its recent decision to raise CRR to prevent any possible crisis that might strike the domestic economy.

"We believe there is room for review of the decision and lowering CRR," he said.

Pant added that the recent drop in commodity prices, which has brought down the value of inventories, might create problems for banks that have invested in commodities. He also assured the gathering that the deposits made by the Nepali banking system in foreign banks were completely safe.

Finance secretary Rameshore Khanal reiterated that the ongoing global financial turmoil would not have any direct impact on the domestic economy; but warned that if the crisis continued, it might delay major investment projects in sectors like hydropower, which need funding from international financial markets.

Khanal said that despite being a U.S.-focused export industry, Nepal's readymade garment industry was less likely to be affected by the present turmoil because its products were targeted at lower-end consumers.

"However, demand for woollen products, which are generally consumed by higher-end consumers, might fall," he said.

Dr. Chiranjibi Nepal, the chairman of the Securities Board of Nepal, said that remittance income, which is one of the pillars of Nepal's economy, might get into trouble if construction activities in the Middle East slowed down due to the current financial upheaval.

He also stressed that a liberal economic policy was still the best instrument to secure the path to prosperity, and added that the present crisis was only a product of a slackening in the monetary mechanism of the financial sector.

Kishor Kumar Agrawal of NCC presented a paper, and concluded that though the present disruption would have no direct impact on the domestic economy, the government seriously needed to work on bringing investor-friendly policies and boosting investor confidence.
Source: Jamb News Service