NRB predicts 9.5 percent inflation

  • mid-term review of monetary policy
- BIBEK SUBEDI, Kathmandu

Feb 29, 2016-

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.

Published: 29-02-2016 09:06

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