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VOL. 03, NO. 05, Aug 01, 2009 (Shrawan 17 2066)
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NRB GOVERNOR ROW
Musical Chair
Moments after Deependra Bahadur Chhetri presented the monetary policy, he got sacked as the central bank’s governor. The NRB musical chair threatens ongoing efforts to tame skyrocketing inflation.
By SANJAYA DHAKAL
Deependra Bahadur Chhetri had a premonition that he was getting the axe even as he read out the 27-page monetary policy at a packed hall in the Bankers’ Club of Nepal Rastra Bank (NRB) at Thapathali on Friday, July the 24th.
“I will fully implement the policy, that is to say, if I remain in the chair,” he said at the start of his presentation of the document which primarily aimed at controlling inflation.
No sooner had he finished his speech, his hunch over the chair came true. A cabinet meeting in Singha Durbar reinstated Bijaya Nath Bhattarai to the post of NRB governor. Bhattarai had been suspended following a lawsuit on embezzlement charges filed against him by the Commission for Investigation of Abuse of Authority (CIAA).
The Supreme Court recently absolved him of those charges – after two long years.
Chhetri’s sudden exit and his subsequent filing of a writ petition at the apex court against the cabinet decision have cast a pall of shadow over the central bank.
Just as dramatic was the re-entry of Bhattarai as the governor. He had to run from pillar to post, appealing for justice, for two years to make a clean comeback to his old job.
Policy Confusion
The sudden turn of events revolving around the top chair at NRB might affect the central bank’s capability to implement its monetary policy.
“Even if I am not there, the policy will be implemented because it has been approved by the whole team including the board and the deputy governors,” Chhetri had said after his speech at the club.
But it is easier said than done.
“There are always possibilities of instability in such an atmosphere. The quick changes in the leadership are bound to hamper the policy stability,” said a member of the NRB board.
The significance of the monetary policy this time has increased with the urgent need to arrest the spiraling rate of inflation.
The last one year saw the average rate of inflation rise to 13 per cent. The new monetary policy aims to bring it down by half in the next one year.
But the central bank cannot attain the aim unless the supply situation is normalized. The bandhs and strikes affecting free flow of goods have been proving to be a death-knell to the efforts to contain inflation.
In the monetary policy, the NRB has stated that the growth rate of 5.5 per cent aimed by the budget can be attained.
It notes that the macro-economic indicators are healthy. “Although the trade deficit widened, the overall balance of payments (BOP) posted a surplus of Rs. 43.1 billion in the first ten months of 2008/09 compared to a surplus of Rs. 19.9 billion in the previous year.”
The migrant workers' remittances also have increased significantly by 55.5 per cent to Rs. 169.2 billion in the first ten months of 2008/09 compared to a growth of 35.5 per cent in the previous year. This has increased despite fears that the global economic crisis would severely hurt this sector.
The accumulation of gross foreign exchange reserves has reached Rs. 283.4 billion in the first ten months of 2008/09. This level of reserves is sufficient to cover merchandise imports of 12.4 months and merchandise and services imports of 10.1 months.
Despite the rosy data, the monetary policy has adopted ‘cautious and tight’ stance amid high inflationary pressure and low growth scenario.
