monetary policy 2011/12

Tuesday, April 18, 2023

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Presented By:Dinesh Adhikari

Manita Budhathoki

Sushila Chaudhary

CASE PRESENTATION ON MONITARY POLICY 2011-12


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Introduction


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o Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

o In the Nepal, the Nepal Rastra bank is in charge of monetary policy.

o Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault.

o If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow.


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FORMS OF MONETARY POLICY

Expansionary It increases the total supply

of money in the economy more rapidly than usual.

It is traditional approach use to try to combat unemployment in a recession.

It lowers the interest rates in the hope that easy credit will entice business into expanding.

Contractionary It decreases the supply

of money. It is intended to slow

inflation. It tries to avoid the

resulting distortion and deterioration of assets values.

Increasing interest rates, Increasing reserve requirements.


GOAL OF MONETARY POLICY

1• To maintain price stability.

2• To contribute to economic growth and stability.

3• To low unemployment.

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• To predictable exchange rate with other currencies.

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LIQUIDITY PROBLEM OF BANK

There is problem of liquidity at bank and financial institution.

NRB has taken as expansionary policy to maintain the liquidity situation, despite of fear of inflation.

NRB decreases CRR 0.5% point to 5%, which releases around 4 billion in banks.


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INFLATION

Targeted 7% inflation rate.Failure to contain the

inflation to 7% according to its target.

Price hike touched an average of 10 % in the last fiscal year's, first 10 months.

Monetary Policy could not achieve targeted inflation rate.


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BOP Situation

o The BOP was Rs 11.67 billion deficit in the first 10 months of the fiscal year.

o Targeted Rs 5 billion BOP surplus.

o By the end of 2010-11, surplus of around Rs 1 billion.

o Reason behind this was foreign grants and aids has increased.


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FOREIGN EXCHANGE FACILITY

Citizen can get exchange facility of $2,500 for once or $5000 in a fiscal year.

Before it was $2000 and $4000.

NRNs also can open bank account in foreign currency.

Policy has become liberal in terms of providing foreign exchange facility.


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DEPRIVED SECTOR LENDING

Policy has increased deprived sector lending to 3.5 percent.

Announced to increase this rate by 0.5 percentage point for next two years.

Policy mentioned to provide collateral free loan of up to Rs 200,000 for the study of technical education .

But policy is not successful towards lending productive sector.


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BANKING @REMOTE AREA

NRB encourages to open branch at nine rural district, where there is not access of financial services.

As well as it also encourages the micro finance institution to go to the remote area.

Deprived sector lending has been encouraged by NRB.


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OTHER ISSUES

The policy addressed the crisis of trust on banking channel by extending deposit insurance up to Rs. 2,00,000 to commercial banks as well to make the smaller depositor feel safe

Due to this banks and financial institutions deposits have also seen a rise of 8.2 % to Rs. 788.72 billion by the end of fiscal year

But the foreign exchange reserve has increased by a mere Rs. 2 billion in a fiscal year 2011-2012 to Rs 270 billion


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monetary policy 2011/12

Government & Nonprofit