Mid-Term Review of the Monetary Policy-2015-16 has estimated inflation of around 9.5 percent by the end of the fiscal year, although the figure rose to seven-year high of 12.1 percent in mid-January.

The central bank has expected the inflationary pressure due to supply constraints will ease off after India lifted its blockade on Nepal in the first week of February.

However, the possibility of increased demand for goods after the start of reconstruction works and weakening of the rupee against the US dollar could continue to push the prices up.

As far as economic growth is concerned, the central bank as estimated the rate at 2 percent, in line with the government’s projection. At be beginning of the fiscal year, the government had targeted economic growth of 6 percent.

NRB Governor Chiranjibi Nepal, during the monetary policy review, said as a result of energy crisis, blockade and Tarai unrest, growth rates of both agricultural and non-agricultural sectors came down. “Unfavourable climatic condition and shortage of chemical fertilisers and pesticides hampered agricultural productivity,” he said.

Despite high balance of payments (BoP) surplus amid reduced imports, the central bank expressed concern about the impact of decreasing number of migrant workers on BoP.

As of the sixth month of this fiscal, BoP surplus stands at Rs139.75 billion, and NRB expects the figure to rise to Rs155 billion by the end of the fiscal year.

However, as imports are bound to grow, widening the trade deficit, monetary management will be made considering the impact of increased imports on BoP, the Mid-Term Review states.

With the blockade affecting the business environment, bank lending to the private sector remained low in the first six months. According to the mid-term review, against the target of increasing the credit by 20.7 percent, it grew by just 13.5 percent. The central bank predicts the loans to grow by 17.5 percent at the end of the fiscal year.

Capital requirement hike for MFIs in offing

Nepal Rastra Bank (NRB) Governor Chiranjeevi Nepal said on Sunday the central bank was preparing to hike the paid-up capital requirement for micro-finance institutions (MFIs).

The governor made the statement during the mid-term review of the monetary policy for this fiscal year here on Sunday. The central bank, through the monetary policy unveiled in July, had hiked the capital requirement for commercial banks, development banks and finance companies by four fold.

Currently, national-level MFIs should maintain a paid-up capital of Rs100 million, while the capital requirement for regional MFIs is Rs60 million. It is Rs20 million for 4-10 districts-based MFIs, and Rs10 million for 1-3 district-based such institutions.

NRB Spokesperson Trilochan Pangeni said the central bank move was aimed at keeping the number of MFIs at “reasonable level”. Currently, there are 40 MFIs in the country, while the central bank has received more than 50 applications for new MFI licences, he said.

On BFI promoters’ complaints the two-year time given to them to meet the new capital requirements is “very short”, the governor said the central bank would not listen to any such complaints. “I am ready to prepone the deadline rather than extending it,” he said.

As per the central bank’s directive, commercial banks have to hike their paid-up capital to Rs8 billion from the current Rs2 billion. National-level development banks have to raise it to Rs2.5 billion from Rs640 million, and national-level finance companies have to increase their capital to Rs800 million from Rs200 million.

According to NRB, most of the commercial banks have proposed hiking their capital by issuing bonus and right’s shares, while development banks and finance companies have prioritised merger.