Management of excess liquidity to curb the creeping inflation will be one of major priorities of the annual monetary policy to be announced on Sunday by Nepali central bank, Nepal Rastra Bank (NRB), according a NRB source.

According to the source, the new policy will put a break on flexible monetary policy that has been adopted for last several years.

"It is time to concentrate on rising inflation by absorbing excess liquidity from the market," the source said on condition of anonymity on Sunday.

He said that the central bank might not change the present bank rate and Cash Reverse Ratio (CRR), the other two options widely used to soak up high liquidity.

Currently, NRB maintains bank rate at 6.25 percent and CRR at 5 percent.

He also said that the policy will also announce a measure of issuing NRB bonds mainly for financial institutions to soak up excess liquidity. The issuance of NRB bonds would be the first time since 1996.

According to estimate, domestic market currently has a usable excess liquidity of around 18 billion Nepali rupees (257 million U. S.dollars) mainly due to continued double-digit growth in remittance income.

High remittance income is also fueling the domestic inflation rate, which has crossed 9.1 percent in the 10 months of last fiscal year, which ended on July 15, four percentage points higher than the budgetary target.

"Apart from the price increment in imported goods, the recent 7. 6 percent price increment of non-tradable goods reflects that people have excess money to spend," the source said.

Likewise, the monetary policy will also make the present foreign exchange region more liberal, which could take a small step towards full convertibility of the capital account, according to the source.

Source: Xinhua