Loanable Funds – Future Komp http://futurekomp.net/ Tue, 04 Jan 2022 04:06:12 +0000 en-US hourly 1 https://wordpress.org/?v=5.8 https://futurekomp.net/wp-content/uploads/2021/03/futurekomp-icon-70x70.png Loanable Funds – Future Komp http://futurekomp.net/ 32 32 MAN calls for government support to overcome constraints https://futurekomp.net/man-calls-for-government-support-to-overcome-constraints/ Tue, 04 Jan 2022 04:06:12 +0000 https://futurekomp.net/man-calls-for-government-support-to-overcome-constraints/

Through Merit Ibe

the The Manufacturers Association of Nigeria (MAN) has requested support from the federal government to overcome the constraining constraints on competitive manufacturing in the country.

The association’s president, Mansur Ahmed, made the appeal during the advocacy visit to President Muhammadu Buhari recently, where he listed the challenges facing the sector, including, but not limited to, procurement. insufficient foreign exchange, electricity, the impending increase in the tax rate, limited access to long-term funds, low footfall of products made in Nigeria, among others.

Hailing the president for the many initiatives, reforms and policies that have helped stabilize the price of manufacturing, Ahmed added that the government, however, must maintain the implementation of policies that have helped the economy recover quickly from recession, to survive the onslaught of COVID. -19 and relaunch other initiatives which suddenly fell into disuse.

He noted that MAN expects the government to continue to make manufacturing a centerpiece of its economic agenda and the catalyst for increased domestic production, employment and wealth creation.

Ahmed who praised the progress made in infrastructure development; various reforms on the ease of doing business and exemplary leadership in limiting the spread of COVID-19, highlighted that manufacturers continue to struggle with an inadequate electricity supply from the national grid and high electricity tariffs for consumers. distribution companies, associated with the enormous cost of providing alternative energy to more than N72.7 billion.

This, he said, limited the competitiveness of the manufacturing sector. “While commending the government for the ongoing reform in the electricity sector, we implore Your Excellency to order that NERC remove all bottlenecks preventing manufacturers from accessing the Eligible Customer Program.”

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Regarding poor long-term access, Ahmed said that limited access to long-term loans and the high cost of loanable funds also restrict the sector’s ability to produce at full capacity and negatively affect manufacturing’s contribution to domestic product. raw.

He recommended that a monitoring and evaluation platform involving the private sector be put in place to oversee the allocation of these funds to ensure that the funds are wisely allocated to genuine manufacturers who need the incentives. .

MAN boss urged government to urgently establish the designated competent authority that will oversee the administration of rules of origin and commission the automation of certificate of origin, export and import documentation processes for the African Continental Free Trade Area Agreement (AFCFTA), transactions.

Regarding the impending tax rate, he said the affected sub-sectors are currently moaning under multiple taxes, levies and fees from different levels of government and the disposable income of the average Nigerian is already eroded, causing a high inventory of products. unsold manufactures. While acknowledging that the government must generate funds to meet its growing social and economic obligations, he felt that it is the tax base that should be broadened to capture the untaxed.

“Genuine and diligent corporate taxpayers should not be overburdened, as this could be counterproductive and the envisioned revenue increase may not be achieved. “

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Bank loans to MSMEs do not reach the threshold https://futurekomp.net/bank-loans-to-msmes-do-not-reach-the-threshold/ Sun, 02 Jan 2022 12:56:39 +0000 https://futurekomp.net/bank-loans-to-msmes-do-not-reach-the-threshold/

The Bangko Sentral ng Pilipinas (BSP) said bank loans to micro, small and medium enterprises (MSMEs) still did not meet the mandatory threshold as of September 30, 2021.

According to the most recent central bank data, 440.34 billion pesos was set aside for MSME financing during the period, below the 826.64 billion pesos required under the law of the Republic 6977, also known as the “Magna Carta for MSMEs”. The amount was only 5.21% of the total loanable funds of 8.44 billion pesos in the third quarter of last year, well below the 10% threshold of the law.

Loans were made by big banks worth 330.93 billion pesos, savings banks for 64.38 billion pesos and rural and cooperative banks for 445.02 billion pesos.

The most recent data echoes findings from the Q3 2021 BSP survey of senior bank loan officers, which found that banks tightened lending criteria for business loans in July-September of. last year.

“The banks interviewed indicated that the reported tightening of global lending standards was mainly due to a deterioration in borrower profiles and the profitability of the banks’ portfolio, a less favorable economic outlook and reduced tolerance for risk, among others. factors, ”he stressed.

According to Bangko Sentral, the reduction in line of credit amounts, tighter collateral requirements and loan covenants, and increased use of interest rate floors indicate a sharp tightening in overall lending standards.

In contrast, longer loan maturities indicated some relaxation in loan requirements.

The central bank’s Monetary Council has approved prudential measures to help MSMEs, BSP Governor Benjamin Diokno previously noted.

The regulatory capital treatment of MSME exposures was changed at this time to temporarily reduce the risk weights of MSME loans. The updated risk-based capital structure for banks has also been postponed from the end of 2021 to the end of 2022.

Diokno further mentioned that the deadline for reporting past due and non-performing loans from borrowers affected by the pandemic has been extended to December 31, 2021, compared to the original deadline of March 8, 2021, subject to reporting. at Bangko Sentral.

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Economic recovery: some glimmers of hope but still a long way to go – myRepublica https://futurekomp.net/economic-recovery-some-glimmers-of-hope-but-still-a-long-way-to-go-myrepublica/ Sat, 01 Jan 2022 00:28:32 +0000 https://futurekomp.net/economic-recovery-some-glimmers-of-hope-but-still-a-long-way-to-go-myrepublica/

The year 2021 was decidedly not as gloomy as the year before in terms of freeing the economy from the clutches of the COVID-19 pandemic. Economic activities accelerated as the spread of the coronavirus gradually slowed. The signs are positive but the economy could sink into a crisis if corrective measures are not implemented on time.

The Nepalese economy, which was heading towards recovery at the end of 2020, following a decline in the impacts of the first wave of the coronavirus, was faced with the second wave of the pandemic towards the end of April 2021. Activities were paralyzed again for months. This has brought down a number of macroeconomic performance indicators, mainly those related to the external sector, raising the question of whether the current situation is a “pre-cyclonic watch” for the impending economic crisis in the country.

Throughout 2021, the sharp fluctuation in bank interest rates, the worsening of foreign currency reserves with the deterioration of the balance of payments (BoP), the surge in consumer inflation, the tightening of liquidity in the banking system, rising government borrowing, widening trade deficit and volatility in the stock market have all come into the limelight. Experts stressed that the situation calls for the implementation of appropriate public policies. However, there are some indicators that the economy is gradually improving.

After the first foreclosure imposed in March 2020, the economy still has not felt the heat mainly due to the cushion of a growing influx of remittances, the main source of the country’s foreign exchange earnings that largely fund the landlocked economy based on imports. Just after a year of the first wave, remittances began to chart a downward trend, putting pressure on the country’s foreign exchange reserves.

Nepal Rastra Bank (NRB) records show that in January 2021, foreign exchange reserves with the country stood at US $ 12.78 billion, sufficient to cover potential merchandise imports of 13.9 months and imports. of goods and services for 12.6 months. As of mid-November 2021, the country is left with foreign exchange reserves of $ 10.47 billion, which can finance imports of goods and services in just 7.2 months.

According to Nara Bahadur Thapa, former executive director of NRB, Nepal need not worry unless the foreign exchange reserve is enough to support imports for seven months. “However, if it is declining rapidly each month, it should be a matter of concern and calls for effective government policies,” Thapa said.

Keshab Acharya, former economic adviser in the finance ministry, said the problem occurring in the external sector will certainly create a ripple effect on the domestic sector of the economy.

Over the past almost six months, the country’s banking system has suffered from a shortage of loanable funds that bankers have blamed in large part on the central bank’s shift to providing deposit-credit (CD) to credit-to-deposit ratio. capital base plus deposit (CCD), slowing government investment spending and lower remittances. NRB data shows that aggressive lending by banks and financial institutions (CIBs) against slow deposit collection has been the main cause of the current liquidity shortage.

At the end of December, the total deposits with CIBs reached 4.81 trillion rupees while they provided loans of 4.61 trillion rupees. Due to an excessive flow of loans, the CD ratio reached 91.02%, which was well above the ceiling set by the central bank of 90%.

Because of this, many banks have already stopped issuing loans to potential investors, which economists say has created the risk of an economic downturn. Experts said the lack of loan flow will also affect the government’s goal of achieving economic growth of seven percent. Acharya said the inability of banks to provide loans could have a detrimental effect on economic growth, as economic activities slow down when there is not enough liquidity in the market.

Rameshwor Khanal, former finance secretary, however, ruled out the possibility of an economic recession due to the inability of CIBs to provide loans to the private sector. “In the post-pandemic period, the private sector has taken out excessive lending, which is of course a positive indication as it could help increase aggregate demand while boosting supply,” Khanal said.

NRB records show that there has been a significant increase in bank loans to manufacturing and service industries despite a slow increase in outstanding loans to agricultural production. If central bank records are anything to consider, CIB’s loan portfolios, given lending on imports of consumer goods to the limit, will show positive results in the future, experts say.

Over the past year, Nepal’s trade deficit has widened from Rs 600.45 billion to Rs 735.48 billion (in mid-November), despite the country making a notable gain in revenue export. “It will work better if the spending is made for imports of capital goods,” Khanal said.

During the period, slow growth in revenue collection against a backdrop of increasing government spending increased government deficit financing. Government records show that the public debt has exceeded 1.7 trillion rupees, which represents about 40% of the country’s GDP. The World Bank has predicted that Nepal’s public debt-to-GDP ratio could reach 50% by 2024. Although it is an obligation for a country like Nepal to finance the majority of development projects through Public borrowing, an increase in its amount at an alarming rate, seen at present, is likely to take a toll on the economic progress of the country.

NRB data shows that the government has also failed to control price increases in consumer goods. The consumer inflation rate crossed five percent from around 3.56 percent during the review period. High inflation could cause Nepalese consumers to cut spending while affecting private sector investment, which would be disastrous for a recovery.

Finance Secretary Madhu Kumar Marasini said the surge in demand after a drop in the impacts of the coronavirus has led to a sharp increase in imports and negative impacts on the country’s BoP. According to him, the government has already started implementing policy measures to cope with the BoP, foreign exchange reserves and remittances as well as injecting the necessary amounts to increase liquidity in the banking system. “We may have to wait a few more months to see the positive results of the impacts of government policies,” Marasini added.

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Banks miss their loan quotas for agriculture and agrarian sectors https://futurekomp.net/banks-miss-their-loan-quotas-for-agriculture-and-agrarian-sectors/ Thu, 30 Dec 2021 16:04:27 +0000 https://futurekomp.net/banks-miss-their-loan-quotas-for-agriculture-and-agrarian-sectors/
NB FILE PHOTO

LENDERS were unable to provide the required credit for the agriculture and agrarian reform (agri-agra) sectors during the period July to September, based on data from the central bank.

Banks disbursed loans worth 804.17 billion pesos in the third quarter for the two sectors, according to preliminary data released by the Bangko Sentral ng Pilipinas (BSP).

During the same period, the total loanable funds amounted to 7,493 billion pesos.

With the 10% land reform and the 15% agricultural credit required under Republic Law 10,000 or the Agri-Agra Reform Credit Law of 2009, the minimum credit allowance was 1,124 trillion pesos.

Broken down, the credit allocation for the land reform sector amounted to 68.932 billion pesos, which is only 0.92% of total bank loanable funds. This is well below the 10% quota.

Credit to the sector disbursed by large banks, savings banks and rural banks amounted to 55.042 billion pesos, 3.053 billion pesos and 10.837 billion pesos, respectively. Not all of them managed to reach the minimum loan requirement.

Meanwhile, compliance for the agricultural sector amounted to 735.241 billion pesos or 9.81% of the banks’ total loanable funds. This is below the minimum requirement of 15%.

Large savings banks and rural banks did not meet the quota with FiFunding to the sector during the period amounted to 700.148 billion pesos, 16.944 billion pesos and 18.149 billion pesos, respectively.

The central bank said earlier that lenders have paid around 2 billion pesos on average in penalties each year since 2011 because of their failure to comply with Agri-Agra law.

BSP officials lobbied for the measure to be changed to include loans in the agricultural value chain as part of quota compliance. This would include distribution, manufacturing, processing and manufacturing, which are part of the agri-food production chain.

In March, BSP issued Circular 1111 which authorized credits for activities covering the conversion of an agricultural product from raw material to form of consumption as part of agri-agra compliance. This is an interim measure while the law has not yet been amended.

House Bill 1634, which provides for the extension of qualifying agri-agra loans, passed third reading in March 2020 and has been forwarded to the Senate. Its counterpart bill remains pending at committee level. – Luz Wendy T. Noble

]]> The tightening of liquidity is expected to continue for a few months https://futurekomp.net/the-tightening-of-liquidity-is-expected-to-continue-for-a-few-months/ Mon, 27 Dec 2021 02:37:50 +0000 https://futurekomp.net/the-tightening-of-liquidity-is-expected-to-continue-for-a-few-months/

With the shortage of loanable funds forcing most banks and financial institutions to suspend their loans, the crisis is expected to continue as the government plans to withdraw more money from the banking sector for income tax purposes by the end of the year. mid-January next year, officials and experts said.

According to Section 93 of the Income Tax Act 2002, taxpayers must pay 40% of the estimated tax by mid-January as the first installment. According to Shovakanta Poudel, director general of the Inland Revenue Department, the department plans to collect more than Rs 80 billion in income taxes by mid-January in addition to other taxes, including the value tax. added and excise duties, which are paid monthly.

Banks and financial institutions themselves are required to pay the first installment of income tax by mid-July, while other businesses are also pulling money from the banking sector to pay taxes to the government, thus draining liquidity from the banking system.

“In view of the potential worsening of the liquidity crisis, the central bank decided this week to inject into the banking sector a refinancing of 92 billion rupees,” said Prakash Shrestha, head of the economic research department of the central bank. “The government has also decided to allow banks to account for up to 50% of local authority reserve funds as deposits, up from the previous threshold of 50%.

Local government funds are expected to add around Rs50 billion in liquidity to the banking system. But the situation is critical with the average credit / deposit ratio of banks and financial institutions already at 92%, while the threshold set by the central bank is 90%, according to Nepal Rastra Bank.

“The liquidity crisis situation may not deteriorate as a result of the measures we have taken, but the situation is likely to remain tense for at least 3 to 4 months,” said Shrestha. “We can expect the situation to improve in March, when government spending increases and import controls are likely to slow lending.”

Shrestha does not rule out the possibility of a prolonged period of liquidity crisis in the banking sector. During the 2018-19 financial year, the banking sector experienced a shortage of loanable funds for an entire year.

The current liquidity crunch is the result of excessive lending in the first five months of the current fiscal year, coupled with the government’s inability to spend its fiscal resources.

According to central bank statistics, banks and financial institutions have collected 116 billion rupees in deposits through December 21 since the start of fiscal year 2021-22 in mid-July. During the same period, credit reached 438 billion rupees.

In addition to the cash shortage and surging imports, falling remittances, depletion of foreign exchange reserves, rising inflation, damage to rice crops from unwanted rains in October and shortage of Fertilizer for winter crops, among other factors, indicates that the economy is in crisis.

Central bank officials in an interaction on Wednesday said most of the loans in the past five months had been spent on financing imports.

The continuing liquidity crisis means that even the productive sector can be denied credits that would ultimately affect economic growth, even though Finance Minister Janardan Sharma has claimed, although without evidence, that the economy is doing well. .

Bidyadhar Mallik, former federal affairs minister and finance secretary, also believes the cash shortage will continue for the time being, not least due to a looming tax payment deadline.

“But the measures taken by the government and the central bank will ultimately ease the situation,” he said. “If government spending increases and Finance Minister Sharma, as he said, shifts the budget from underperforming projects to performing projects, the situation should ease by February-March.”

There are over Rs 250 billion in cash reserves due to the inability of the three levels of government to spend the allocated funds, according to the Office of the Comptroller General of Finance, the government agency responsible for accounting for revenues and accounts. government spending.

Federal government spending is only 25 percent, with capital spending accounting for 7 percent, according to the office.

New tax collections will result in an accumulation of resources in the accounts of the federal, provincial and local governments.

Mallik said the government could delay tax collection without imposing fines on taxpayers if it is unable to speed up spending.

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Manchester United transfer plans for next manager are already taking shape – Samuel Luckhurst https://futurekomp.net/manchester-united-transfer-plans-for-next-manager-are-already-taking-shape-samuel-luckhurst/ Fri, 24 Dec 2021 06:00:00 +0000 https://futurekomp.net/manchester-united-transfer-plans-for-next-manager-are-already-taking-shape-samuel-luckhurst/

Manchester United’s website lists 38 players in the first team section. Six are on loan, three haven’t played for the first team all season and three others haven’t started a game.

Ralf Rangnick works roughly with a 26-man squad and he still hasn’t had Raphael Varane, Edinson Cavani or Paul Pogba available for selection. Phil Jones, Teden Mengi and Amad are loanable next month while Juan Mata could request a departure earlier than his contract expiration date of June 30.

United have a deliberately bloated squad to tackle the pandemic. The Omicron variant was described as a “storm, not a hurricane” by science adviser Andrew Hayward and the early Thursday morning pages cited two separate studies which concluded that Omicron is less severe than the Delta variant.

The UK government has resisted reintroducing restrictions, but the Netherlands is already stranded nationwide. Dean Henderson, interested in what would be an ideal loan to Ajax, is in lockdown limbo.

An agency source has previously said the pandemic and lockdowns are affecting the January market. Footballers still have special privileges when it comes to freedom of movement – unfair to anti-vaxxers in the locker room – but anxiety is still there. Steven Gerrard has said that an Aston Villa player with symptoms of Covid was reluctant to leave his car.

Rangnick may have arrived too late for United to formulate a proactive battle plan to generate funds in January. the Manchester Evening News reported last week, Jesse Lingard is expected to terminate his contract with United rather than move next month. A mid-season change for Pogba was never predictable and there is little logic in letting Cavani go when he has a goal in Rangnick’s first two.

Mata and Anthony Martial are in surplus, with six starts between them this season. Mata, 34, in April, has been a staunch servant during his eight years at United and deserves a worthy farewell. The same cannot be said of Martial, out of form for 15 months, a period that has earned him eight goals.

United stand to lose tens of millions but it is for the best if Martial, Cavani, Mata, Lingard and Pogba are left off the books when the next summer transfer window closes. Erling Haaland’s continued lawsuit would indicate that Cavani and Martial’s numbers are up and Rangnick appears to have no interest in bringing Pogba or Lingard back to the negotiating table.

Every United manager since David Moyes has inherited a leak or a leak. Moyes rekindled Wayne Rooney and his best form after Ferguson resulted in a new contract. David de Gea turned around on Louis van Gaal’s watch and Jose Mourinho signed a one-year contract for Michael Carrick. Pogba is still at United after Ole Gunnar Solskjaer’s power indulgence.

Whether the next permanent manager is Rangnick or one of United’s initial shortlisted candidates, they would inherit an enviable position. Rangnick restores the manager’s authority and cleaning up the bridges would allow him or his successor to strengthen a streamlined team.

An incoming midfielder is certain next year and a striker is also essential. United still have Cristiano Ronaldo, Jadon Sancho, Mason Greenwood, Bruno Fernandes, Marcus Rashford and Donny van de Beek to choose from for their attacking quartet, with the potential provided by Anthony Elanga and Hannibal Mejbri. Haaland is a generational talent who deserves to be courted, but a designer is more urgent.

You wouldn’t want to get past the destructible and yet indestructible Jones to survive Rangnick as the second anniversary of his last appearance approaches. A one-season loan awaits Mengi and Eric Bailly’s participation in the Africa Cup of Nations next month is sure to hurt his future playing time at club level.

United should have cut the cord this summer. Bailly has always played this season but must be offended by his status as a fourth-choice center-back. A more robust middle half to compensate for Jones and / or Bailly would make sense.

Diogo Dalot outclassed Aaron Wan-Bissaka in his recent run, but must maintain him for the next five months if United are to put aside their right-back strengthening plans. Rangnick has previously stressed that three goalkeepers ready for the first team are needed if Henderson is to be loaned or sold. Tottenham have become a possible summer destination, with Hugo Lloris approaching the final six months of his contract.

Potential United squad 2022-23

From Gea / Henderson, new backup guard, Heaton, Wan-Bissaka, Dalot, Maguire, Varane, Lindelof, Bailly, Shaw, Telles, new defender, Matic, McTominay, Fred, new midfielder, Van de Beek, Fernandes, Elanga, Mejbri, Amad, Rashford, Sancho, Greenwood, Ronaldo, new before

]]> Central bank says more deposits, less loans, sign of improving liquidity https://futurekomp.net/central-bank-says-more-deposits-less-loans-sign-of-improving-liquidity/ Thu, 23 Dec 2021 01:15:14 +0000 https://futurekomp.net/central-bank-says-more-deposits-less-loans-sign-of-improving-liquidity/

Nepal Rastra Bank officials said the gap between deposits and credit, which has led to the current shortage of loanable funds in banks and financial institutions, has turned towards a correction.

According to them, this is reflected in the reverse trend of deposit collection and credit expansion in the third week of December. Banks and financial institutions have collected 116 billion rupees in deposits through December 21 since the start of the 2021-2022 fiscal year in mid-July. During the same period, credit reached 438 billion rupees.

But, this trend was completely reversed in the week of December 16-21, according to the central bank, as banks and financial institutions collected 27 billion rupees in deposits and extended credit of 7 billion rupees.

“The latest data shows that the trend of expanding deposits and credit has reversed,” Prakash Kumar Shrestha, head of the economic research department at the central bank, said during a meeting in Kathmandu on Wednesday.

Central bank officials said recent moves to control imports and the central bank’s pumping of liquidity into the banking system would also help balance deposit credit growth.

As the country’s economy recovers from the disastrous effects of the Covid-19 pandemic, demands for credit have increased for importing goods.

With banks and financial institutions lending excessively to finance imports, this caused a liquidity crisis in the banking system and this crisis was compounded by the failure of the government to make capital expenditures.

Now the government and the central bank have taken a number of steps to rectify the situation, with the central bank injecting liquidity into the banking system through repurchases, overnight reverse repurchases and reverse repurchase agreements. ‘outright purchases and refinancing facilities. The government has also allowed banks and financial institutions to account for 80 percent of funds owned by local governments as deposits in order to reduce the credit-to-deposit ratio.

The repo is a monetary instrument whereby the central bank buys securities from banks and financial institutions while providing them with funding, while the overnight repo is a short repo.

The central bank also requires importers to deposit 100 percent cash in banks to open the letter of credit for importing certain goods the government wants to discourage from importing.

Central bank governor Maha Prasad Adhikari said the measures were taken as short-term solutions to deal with the liquidity crisis. “Our preparations are underway for medium and long term strategies to deal with the recurring liquidity crisis in the banking system,” he said.

While the increase in import financing has resulted in a liquidity shortage in the banking system, the country also suffers from a huge balance of payments deficit and declining foreign exchange reserves.

The balance of payments, which refers to the balance between money leaving the country and money entering, slipped to a deficit of 150.38 billion rupees in the first four months of the current fiscal year and while gross foreign exchange reserves fell by 11%. percent to Rs1244.85 billion in mid-November from mid-July, according to the central bank.

Current foreign exchange reserves would be sufficient to import goods and services for 7.2 months, according to the central bank.

But, central bank officials said they noticed signs of depletion of foreign exchange reserves as early as April. But the central bank did not intervene even through the monetary policy for the current fiscal year 2021-22 released in mid-August, about a month after the start of the fiscal year.

Experts have sounded the alarm on the state of the economy, saying the current deterioration in economic indicators along with the potential fertilizer crisis and the potential spread of the Omicron variant could cause economic catastrophe.

However, central bank officials argue that they have not stepped in to help economic activities thrive after the Covid-19 pandemic and have also paved the way for the economy to self-correct.

“Sometimes the economy corrects itself as part of a cyclical model. But if that doesn’t happen, we have to intervene politically, ”Shrestha said.

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Monetary policy is about money, not interest rate https://futurekomp.net/monetary-policy-is-about-money-not-interest-rate/ Wed, 22 Dec 2021 12:00:00 +0000 https://futurekomp.net/monetary-policy-is-about-money-not-interest-rate/

FFederal Reserve watchers are stunned by the proposed central bank tightening.

Following the recent Federal Open Market Committee meeting, Federal Reserve officials confirmed that they plan to put the brakes on. The balance sheet could even contract in summer. We could just go back to normal monetary policy, something that has not been discussed since COVID-19 nor seen since the 2008 crisis.

Unfortunately, the switch to regular ordering comes with some baggage. There is one mistake that financial and economic commentators seem determined to make: the idea that the Federal Reserve is “fixing” interest rates. We cannot escape the misdeeds of money until we put this mistaken view behind us. Interest rates can be useful as a barometer of monetary policy. They give policy makers clues about liquidity conditions. But don’t confuse the barometer with the weather.

The Federal Reserve is targeting a range for the federal funds rate – what banks charge each other for overnight loans. Like most interest rates, this price of leased capital is determined in a market. The Federal Reserve is an important player in this market but does not control it. Yes, the Federal Reserve can influence the federal funds rate by changing the supply of bank reserves. But policymakers cannot do whatever they want with this rate. Long periods of low interest rates, as we have now, are due more to market forces than to the will of central bankers.

If we don’t understand how monetary policy works, we are likely to be wrong in deciding whether money is loose, tight, or fair. The difficulty is due to the many effects of changes in the money supply on interest rates. Cash injections can lower short-term interest rates by increasing the supply of loanable funds. But the longer-term effects work the other way around: increased output and inflation pushes interest rates up. High rates can mean loose money and low rates mean tight money. It reverses conventional wisdom.

An excessive focus on interest rates is dangerous. Instead, we should pay attention to what really matters to monetary policy: the money itself. It all depends on supply and demand. Money is loose if its supply exceeds the demand to hold it; money is tight if its supply is less than the demand to hold it. The price of silver, its purchasing power, adjusts to balance supply and demand. It’s the old school monetarist paradigm. Although it has been updated and extended since the days of Milton Friedman, the basic idea still holds. The corollary is that interest rates are irrelevant. Creating and circulating money is what matters.

This is not an ivory tower chicane. Monetary history is replete with political failures, many of which stem from a misunderstanding of interest rates. In the 1930s, the Federal Reserve turned a large, but not fatal, market correction into the Great Depression by failing to counter a plummeting money supply. Why? Because interest rates were low, policymakers mistakenly thought the money was already in bulk. The contemporary version of this mistake is the “liquidity trap,” the belief that the Federal Reserve is out of ammunition when interest rates hit the “lower limit of zero.” Absurdity. As long as there are assets to buy, the Federal Reserve is never powerless.

As the Federal Reserve unwinds its emergency policies, we must beware of the reverse error. Growth in output and inflation will eventually lead to higher interest rates. This is a sign of a booming economy, not of sagging. The Federal Reserve’s target rate hikes should be understood as following broader market conditions rather than determining them.

It has been a tumultuous decade for monetary policy. With the fallout from the 2008 and 2020 emergencies behind us, we are ready to bring the central bank back to the realm of the ordinary. Our difficulties will not be unnecessary as long as we remember this crucial lesson: Economic stability depends on the supply and demand of money, not on interest rates.

Alexander William Salter is Associate Professor of Economics at Rawls College of Business, Texas Tech University, Research Fellow at TTU’s Free Market Institute, and Principal Investigator at AIER’s Sound Money Project.

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Government allows banks to use up to 80% of funds provided to local governments in their CD ratio – myRepublica https://futurekomp.net/government-allows-banks-to-use-up-to-80-of-funds-provided-to-local-governments-in-their-cd-ratio-myrepublica/ Tue, 21 Dec 2021 00:48:01 +0000 https://futurekomp.net/government-allows-banks-to-use-up-to-80-of-funds-provided-to-local-governments-in-their-cd-ratio-myrepublica/

The limit has been extended by an additional 30% to help ease the liquidity crisis seen in the banking system

KATMANDU, December 21: The government has revised the deposit limit, on the amount of the subsidy granted to local communities, which the banks concerned have used to maintain their credit-to-deposit (CD) ratio. The government’s move aims to alleviate the current shortage of loanable funds in the country’s banking system.

The Ministry of Finance (MoF) recently wrote to Nepal Rastra Bank (NRB) to this effect, allowing banks to extend the cap. In the new provision, banks can now use up to 80 percent of funds released by the federal government to local governments in their CD ratio. At present, banks have only been allowed to use 50% of the amount of these subsidies to maintain the mandatory threshold provided by the central bank.

At present, most of the banks have exceeded the 90 percent NRB fixed limit on the CD ratio. This made the banks unable to issue new loans to their customers.

This year, the government has allocated a total fund of Rs 387.30 billion to local communities. In the new arrangement, banks will be available with additional funds worth over Rs 100 billion to count in their deposit, allowing them to issue additional amounts in the form of loans accordingly.

According to the Ministry of Finance, the new provision will come into force until mid-July 2022, i.e. the end of the current fiscal year. Likewise, banks will be allowed to mobilize an additional amount created from the extended ceiling only in the productive sector, but not to finance import and trading companies.

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Amidst liquidity shortage, government delays increase in domestic lending https://futurekomp.net/amidst-liquidity-shortage-government-delays-increase-in-domestic-lending/ Mon, 13 Dec 2021 01:15:14 +0000 https://futurekomp.net/amidst-liquidity-shortage-government-delays-increase-in-domestic-lending/

It is almost mid-December, but the government has yet to start raising internal loans, citing the lack of liquidity in the banking system. Banks and financial institutions in Nepal say they are running out of loanable funds.

The open market operations committee, chaired by the vice-governor of the central bank, recommended in October that the finance ministry program a debt increase from mid-November, according to management office officials. of public debt.

But the Ministry of Finance has not yet made a decision on this matter.

“We have not received the timetable for raising internal borrowing from the finance ministry,” said Hira Neupane, undersecretary at the Bureau of Public Debt Management. “I don’t think we’ll start raising internal loans anytime soon given the shortage of liquidity in the market.”

Domestic debt is a device envisioned in the federal budget whereby the government borrows from domestic sources – citizens and institutions, including banks and financial institutions – by selling debt instruments in order to fill the necessary resource gap. to expenses.

Treasury bills, development bonds, citizens’ savings bonds, national savings bonds, and foreign employment savings bonds are some of the debt instruments that governments have used to borrow. internal. Banks and financial institutions are big buyers of government debt instruments.

During the 2020-2021 fiscal year, the government began to raise internal borrowing in early October.

The government of Sher Bahadur Deuba has reduced internal lending for the current fiscal year to 239 billion rupees through a replacement bill of 250 billion rupees proposed by the previous government led by KP Sharma Oli. The proposed amount of internal loans is 14.62% of the total budget for the current year. The total budget size for the current fiscal year is 1.6 trillion rupees.

Successive governments in Nepal have a poor track record when it comes to spending their resources.

Government spending is one of the tools that helps stimulate the economy.

Even though Finance Minister Janardan Sharma pledged in September that the government would spend 10 percent of the capital budget each month, this has not been reflected on the ground.

According to the Office of the Comptroller General of Finance, as of December 11, overall government spending was only 22.66% of the total budget, while capital spending was only 6.13% of the allocated investment budget. The government has allocated a total of 439.65 billion rupees to the investment budget for this fiscal year, according to the office which maintains records of government income and expenditure.

The current situation of liquidity shortage in the banking system is due to excessive lending in the first months of the current fiscal year, according to Nepal Rastra Bank, the country’s central bank.

Prakash Kumar Shrestha, head of the economic research department at the central bank, said excessive lending in recent months relative to deposit taking has led to a shortage of liquidity.

According to the central bank, deposits have only increased by 52 billion rupees through December 9 since the start of the new fiscal year in mid-July, while loans have jumped by 416 billion rupees during the year. same period.

This means that the credit / deposit ratio of banks and financial institutions stands at 95.8%, well above the regulatory limit of 90%. As a result, banks and financial institutions are no longer able to lend money.

The central bank, through its quarterly review of monetary policy, has asked banks and financial institutions to submit an action plan to reduce the credit / deposit ratio within the limit by the end of the current fiscal year to mid-July 2022.

The central bank had targeted an average credit growth of 19% for the current fiscal year.

“But loans have increased by as much as 32%, which has resulted in a cash shortage,” Shrestha said.

With the banking sector facing a liquidity shortage, interest rates have skyrocketed.

“Raising funds in the current scenario will cost the government dearly as it will have to pay more interest on internal loans,” Shrestha said. “Since government spending has remained low, it has enough money in its treasury. Thus, the government may not have felt the urgency to raise internal loans. “

Shrestha considers the delay in increasing internal lending at the moment a good decision. He said, however, that the government could raise a certain amount of internal loans to avoid being overburdened by internal loans in the last few months.

One of the factors behind the delay in raising internal borrowing could also be the change in the budget, the amount of which has been reduced.

“The main reason for not raising internal loans is the shortage of liquidity,” Neupane said. “At a time when the private sector is struggling to obtain loans from the banking sector, the liquidity situation can get even worse if the government starts raising internal loans from the system. “

According to the Public Debt Annual Report 2020-21 recently released by the Public Debt Management Bureau, Nepal’s domestic debt stands at Rs 802.94 billion while the external debt stands at Rs 934.14. billion rupees.

The country’s total debt stock stands at Rs 1,737.08 billion.

Bidyadhar Mallik, a former finance secretary who also served as federal affairs minister, said there was no point in raising internal loans until the government spent available resources.

“How would the government spend additional resources when it is struggling to spend the money it already has in state coffers,” he said.

According to him, the government will end up paying higher interest if it unnecessarily increases internal lending in the event of a liquidity shortage in the banking sector. “It will also deprive the private sector of the necessary financial resources,” Mallik said.

While political instability has been the bane of the Nepalese economy, it has been further reduced by the Covid-19 pandemic. The road to recovery still seems rocky. The government, however, can at least stimulate the economy by channeling resources and ramping up spending, experts say.

“If the government starts spending its resources, the money will go into the banking sector. Once banks and financial institutions finance the private sector, it will lead to increased economic activity, ”Mallik said.

After the 2017 elections, the country was expected to experience steady growth, as a strong government was in place with a five-year term to govern. However, infighting within the then ruling Communist Party of Nepal (PCN) led to the fall of the government of KP Sharma Oli in July of this year.

Nepal was back in the days of the coalition government. Experts and analysts say that a coalition government has its own problems, which usually hamper economic activities also because different parties have different interests.

Officials from the Bureau of Public Debt Management say that with spending low, the open market operations committee has recommended increasing debts by small amounts for now due to the liquidity crisis.

“The committee also suggested raising larger amounts of domestic debt in the final months of the fiscal year after the liquidity situation eases,” the official said.

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