Nepal central bank chief's term cut sparks fears of political meddling

Former governors of Nepal Rastra Bank have voiced strong criticism against a parliamentary committee's decision to reduce the tenure of the central bank's governor, deputy governors, and board members to three years. They warn that this change could jeopardize institutional stability and the continuity of monetary policy.

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This is fundamentally a question of leadership stability at the central bank. The governor’s tenure was set at five years, on par with that of lawmakers, to ensure policy continuity and make monetary policy more predictable.

The Finance Committee of the Federal Parliament, while discussing amendments to the Nepal Rastra Bank Act, proposed a three-year term for top officials. This term could be extended by the Cabinet for an additional two years based on performance. Critics, including former finance minister and governor Yuba Raj Khatiwada, argue that the governor's tenure was intentionally set at five years to ensure predictability in monetary policymaking and align with the term of lawmakers.

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I have also heard that the five-year term has been reduced to three years. This is a mistake. I believe this is the wrong move, based on my experience.

Khatiwada expressed concern that reducing the tenure might lead to short-term, unstable leadership at the central bank, which international institutions closely monitor for independence. He believes that concerns about an unsuitable governor or a government's desire to appoint a preferred candidate should not compromise the central bank's stability. Former governor Vijaya Nath Bhattarai was even more direct, suggesting the move aims to prevent governors disliked by the ruling party or political groups from completing their full term. He urged reforms in the appointment process and eligibility criteria to ensure merit-based selection rather than shortening tenure.

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This is nothing more than a policy of preventing people they do not like from serving as governor for a long period. It suggests that they want the central bank to operate according to the interests of a particular party or group for a fixed period.