According to the Nepal Rastra Bank (NRB), the policy of restricting luxury goods imports is a short-term solution for increasing liquidity in the banking sector.
“The government and central bank have been obliged to find ways to reduce imports as they have risen dramatically. However, this austerity step is only intended to be temporary “Maha Prasad Adhikari, Governor of the National Reserve Bank, remarked during a Wednesday interaction event with economic journalists.
According to him, the central bank is developing a mid- and long-term strategy to handle the recurring difficulties of liquidity strain and diminishing foreign exchange reserves.
According to him, if there are any difficulties in the financial system, the central bank would intervene, but if the new policies have bad consequences or do not produce the desired outcomes, they will be changed or replaced.
The central bank’s new regulations to retain cash margin while obtaining Letters of Credit (LC) to import luxury commodities, according to Governor Adhikari, are an attempt to discourage the import of such goods.
“If there is actual demand, the policy does not prohibit importers from bringing luxury products into the nation,” he said, adding that the move would not raise the cost of goods.
Dr. Prakash Kumar Shrestha, Executive Director of the NRB’s Economic Research Department, stated that the country’s current economic situation is not as severe as it appears.
“When compared to the same period last year, indicators such as remittance inflow, foreign exchange reserve, and liquidity appear to be weaker this year. The COVID-19 pandemic has produced a one-of-a-kind predicament “he stated.
For example, four years ago, the foreign exchange stockpile was depleted at a rate of Rs. 73 billion per month. It was Rs. 80 billion per month last year, and it is now Rs. 78 billion per month this year.
“When we consider the anomalous scenario of the previous year, the signs don’t appear to be as frightening,” Governor Adhikari stated.
He said that the sudden resurgence of enterprises and economic activity following the COVID-19’s second wave had depleted resources and put pressure on the financial system.
“The economic recovery has accelerated. This would almost certainly have an impact on growth and liquidity “he stated.
Anil Kumar Upadhyay, President of the Nepal Bankers’ Association (NBA), stressed the importance of embracing creative techniques to guide the country’s economy to a new normal following the pandemic. He said, “There haven’t been any discussions about the tactics to be used in the new normal.”
Similarly, Saroj Kaji Tuladhar, President of the Nepal Finance Companies Association, believes that when there is a lot of money, bad debt and unproductive lending will rise.
Pradyumna Pokharel, President of the Development Bankers’ Association of Nepal, emphasized the importance of channeling remittances to productive sectors and development initiatives.