April 10: The government has intervened in the formulation and implementation of the country's monetary policy at a time when key economic indicators such as Balance of Payments, inflow of remittance and foreign exchange reserves are all negative.

The government has launched an investigation without any credible basis into the alleged role of leaking vital information by Nepal Rastra Bank’s Governor Maha Prasad Adhikari, who was attempting to revive the crisis-ridden economy.

A cabinet meeting on Thursday formed a probe committee headed by former justice Purushottam Bhandari to investigate the matter. The committee includes Surya Thapa and Dr Chandrakant Poudyal as members.

With the formation of the committee, the governor's rights have been automatically suspended. The central bank is currently headed by Officiating Governor Dr Neelam Dhungana.

There is a provision in the Nepal Rastra Bank Act-2058 BS that allows the government to take action against the governor for the breach of 6 different points.

The government can fire the NRB governor, upon the recommendation of the probe committee, if he is disqualified for being a bank operator as well as lack of ability to work as per the bank’s objective, causing damage to banking and financial system, disqualification of license to operate business due to misconduct, or if found to be untrustworthy and for skipping the board meeting for three times without any credible grounds.

However, the government has started the investigation process without providing any credible basis for the probe. Experts have pointed out that the probe into the governor when the state of the economy is deteriorating has sent the wrong message to the public. They see it as an interference with the NRB's autonomy. Although it is common to have differences between the central bank and the finance minister, suspending the governor in the current situation has sent the wrong message, says Chiranjeevi Nepal, a former governor himself. Such differences occur elsewhere.

"As the government is the super regulator, it can also investigate the regulatory body," says the former governor of Nepal, adding, “But the decision to investigate the role of the governor during such crisis has cast down the morale of the society.”

Since the objectives of the central bank and the government contradict with each other in some points, the differences between the finance minister and the governor should be taken as normal, says Nepal.

According to him, the Finance Ministry aims to spend as much money as possible to achieve economic growth but the central bank has to control the spending to avoid inflation and also needs to keep the foreign exchange reserves in balance.

He added that the government had interfered in the central bank’s autonomy.

Another former governor, Dipendra Bahadur Chhetri, also admits that the Ministry of Finance has started interfering in the banking system.

Adhikari, who joined NRB as an assistant officer, retired as a deputy governor. He became the governor upon the recommendation of the then Finance Minister Yuvaraj Khatiwada around two years ago.

Adhikari has been praised for bringing the monetary policy to revive the Covid-affected economy soon after he became governor.

However, the conflict erupted after Finance Minister Janardan Sharma instructed the central bank to postpone the issuance of monetary policy.

Recently, there was a dispute between the finance minister and the governor over the banks’ interest rate. The Finance Minister was infuriated with the governor after the finance minister’s instruction to release illegal properties came out in the media. It resulted in the suspension of the governor.