In a first this fiscal year, inflation dips below 9pc

KATHMANDU, JUN 15 -

Inflation has dipped below 9 percent for the first time this fiscal year. The latest macro-economic report of Nepal Rastra Bank (NRB) shows inflation moderated to 8.7 percent in the 10th month of this fiscal, although it remained at double digits for most of the months over the period this year.

It is also the first time inflation remained at a single digit in a row for two consecutive months starting from the ninth month. The price rise was in single digit in mid-January, but surged again to double digits for two consecutive months.

NRB Research Department Chief Min Bahadur Shrestha said the degree of price rise in non-food items declined in the 10 month this year as compared to the same month last year, which contributed to the moderation of inflation. “However, there has not been a significant downturn in the price of food items.”

Last year too, inflation had remained at 8.7 percent in the 10th month.

However, Shrestha said the annul inflation rate is expected to remain higher as it remained at double digits for most of the months this fiscal.

The Finance Ministry recently estimated the annual inflation to remain at 10.5 percent this year.

Shrestha said the massive decline in food prices in India in recent days could have a positive impact on inflation in the final months of this fiscal and early months of the next fiscal.

“But, there is also the risk that the price rise in goods imported from third countries (other than India) due to the strengthening of the dollar against the Nepali rupees could trigger inflation upwards,” Shrestha said.

While inflation headed for a positive direction, trade deficit has stood as a major concern for the country due to slow exports and surged imports over the review period.

According to the report, the country’s trade deficit has reached a whopping Rs 395.22 billion with a rise of 22.7 percent as a result of massive imports. “Trade deficit along with low government expenditure are two major challenges for the economy which must be addressed,” said Shrestha.

The report says that the country’s export increased by just 4 percent to Rs 63.33 billion, while imports surged by 19.7 percent to RS 458.56 billion.

The massive surge in import is particularly attributed to the massive increment in imports from India, it says. The country’s export to India increased by just 1.9 percent, while import from India surged by 22.1 percent during the review period. “Efforts must focus on reducing imports of non-productive goods and increasing exports,” said Shrestha.

He also lamented the slow progress in exports despite efforts such as cash incentives to exporters and cheap credit facility under the NRB’s refinance facility scheme.

On government expenditure, the report says the country has a budget surplus of Rs 47.33 billion as of the first 10 months.

Thanks to remittance, there has been continued improvement in the country’s balance of payment (BoP) status. As of the first 10 months of this fiscal, the BoP surplus stands at Rs 38.60 billion.

A notable improvement in the BoP started only in the eighth month of the current fiscal, although it saw a record surplus last fiscal. Remittance, which has been the biggest source of foreign exchange in the country, rose by 21.5 percent to Rs 342.59 billion during the review period.

According to the report, foreign exchange reserve remained at Rs 483.36 billion, which is sufficient for financing merchandise and service imports for 9.3 months.

As far as the banking sector is concerned, there has been an improvement in both deposit mobilisation and credit flow. The report says that the deposit mobilisation of banks and financial institutions increased by 8.3 percent while lending grew by 15.7 percent. Deposit mobilisation had been slower in earlier months, which has created tightness in liquidity in the banking sector. “Liquidity problem is now, however, over,” said Shrestha.

Source: The Kathmandu Post