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Monetary Policy: Essential for Economic Stability and Expansion

Author

Dipesh Ghimire

Monetary Policy: Essential for Economic Stability and Expansion

Monetary policy determines important economic indicators such as interest rates, credit flow, and money supply in the economy. Since it influences interest rates, it impacts the contraction of credit.

Objectives of Monetary Policy

For a country like ours, the primary objectives of monetary policy include:

  1. External Sector Management: Maintaining a desirable level of foreign exchange reserves to reduce trade deficits and balance of payments issues.

  2. Inflation Control: Ensuring price stability and managing the external sector effectively.

  3. Maintaining Economic Stability: The central bank formulates policies to support the expansion of economic activities, ensuring overall stability.

Formulation of Monetary Policy

When the Nepal Rastra Bank (NRB) prepares monetary policy, it follows several technical procedures:

  1. Gathering Feedback and Suggestions from Stakeholders: Suggestions received are discussed in the Interdepartmental Coordination Committee.

  2. Discussion in the Management Committee: The final version is approved by the NRB's board of directors after discussion in the committee chaired by the governor.

Considerations in Monetary Policy Formulation

  1. Current Economic Condition: The state of the country's economic indicators and the international economic environment.

  2. Events and Pressures: Situations arising from national and international indicators.

Review of Monetary Policy

For the past five years, the Nepal Rastra Bank has been reviewing its monetary policy on a quarterly basis. Initially, this review was conducted annually, but due to rapid economic changes, a quarterly review was initiated. Factors such as inflation, geopolitical issues, the impact on remittance inflows, and the influence on bank deposits necessitated this adjustment.

Conclusion

Monetary policy plays a crucial role in ensuring economic stability and expansion. By affecting indicators like interest rates, credit flow, and money supply, it stabilizes economic activities. Through regular reviews and adjustments, the Nepal Rastra Bank strives to keep the economy on the right track.

What Are Your Thoughts?

How do you view the formulation and impact of monetary policy? What role do you think it plays in Nepal's economy? You can share your thoughts below.

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