Inflation cut to half in the first month of the fiscal year; Remittances increased by 23%; Deposit and lending interest rates also fell

The central bank published macro-economic data based on the first month's data of FY 2077/78. The report covers major details on inflation, trade, services, remittance, BOP position, foreign exchange reserves, fiscal deficit, surplus, expenditure, revenue, money supply, deposit, credit liquidity, interest rates, and the capital market.

Some of the major highlights from the reports are:

Inflation: The y-o-y consumer price inflation stood at 3.49% in mid-August 2020 compared to 6.95% a year ago. Food and beverage inflation stood at 5.38% whereas non-food and service inflation stood at 2.04% in the review month. However, the price of vegetables increased by 28.21% compared to a month ago.

Import and export: Exports to India increased by 4.4% whereas exports to China decreased by 71.7%.

Exports of pashmina, woolen carpet, medicine (ayurvedic), herbs, and jute goods, among others, increased whereas exports of palm oil, juice, cardamom, polyester yarn and threads, and zinc sheet, among others, decreased in the review period.

Imports from India, China, and other countries decreased by 16.8%, 39.7%, and 10.5% respectively. Imports of rice, telecommunication equipment and parts, crude soyabean oil, coal, and edible oil, among others, increased whereas imports of petroleum products, transport equipment, and parts, other machinery and parts, M.S. billet, and hot-rolled sheet in coil, among others, decreased in the review period.

The total trade deficit narrowed down 22.2% to Rs. 76.19 billion in the first month of 2020/21. Such deficit had contracted 13.9% in the corresponding period of the previous year. The export-import ratio increased to 11.2% in the review period from 8.3% in the corresponding period of the previous year.

Services: Net services income remained at a deficit of Rs. 2.45 billion in the review period compared to a deficit of Rs. 3.41 billion in the same period of the previous year.

Under the service account, travel income decreased by 86.1% to Rs. 605.6 million in the review period which was Rs.4.36 billion in the same period of the previous year.

Remittance: Remittance inflows increased by 23.0% to Rs. 92.71 billion in the review month compared to an increase of 2% in the same period of the previous year. 

Current account: The current account remained at a surplus of Rs. 25.41 billion in the review month against a deficit of Rs. 9.34 billion in the same period of the previous year.

BOP position: Balance of Payments (BOP) registered a surplus of Rs. 51.46 billion in the review period. The surplus was Rs. 6.05 billion in the same period of the previous year.

Exchange rate: Nepalese currency vis-à-vis the US Dollar appreciated 0.7 percent in mid-August 2020 from mid-July 2020. It had depreciated 3.7 percent in the same period of the previous year. The buying exchange rate per US Dollar stood at Rs.119.55 in mid-August 2020 compared to Rs.113.55 in mid-August 2019.

Government expenditure: In the review period, the total expenditure of the federal government based on banking transactions (excluding direct payments and unrealized cheques) stood at Rs.1.95 billion. Such expenditure was Rs.2.62 billion in the corresponding period of the previous year.

Government revenue: Meanwhile, the revenue collection based on banking transactions (including the amount to be transferred to provincial and local governments) stood at Rs.58.81 billion.

Fiscal Deficit/ Surplus: In the first month of 2020/21, the fiscal position of the Government, based on banking transactions, remained at a surplus of Rs.58.93 billion compared to a surplus of Rs.76.97 billion in the corresponding period of the previous year.

Banking:

-Deposit collection: Deposits at Banks and Financial Institutions (BFIs) decreased 0.1% in the review period compared to a contraction of 0.4% in the corresponding period of the previous year. On a y-o-y basis, deposits at BFIs expanded 19% in mid-August 2020.

-Credit distribution: Private sector credit from BFIs decreased 0.5 percent in the review period compared to a growth of 0.5% in the corresponding period of the previous year. On the yo-y basis, credit to the private sector from BFIs increased 10.8% in mid-August 2020.

-Liquidity management: In the review period, NRB mopped up Rs. 60 billion liquidity through reverse repo auction on a cumulative basis. Rs.30 billion liquidity was mopped up in the corresponding period of the previous year. Rs. 3.3 billion liquidity was injected through a standing liquidity facility (SLF) in the corresponding period of the previous year.

Also, NRB injected liquidity of Rs.52.19 billion through the net purchase of USD
435.7 million from the foreign exchange market. Liquidity of Rs.20.11 billion was injected through the net purchase of USD 178.6 million in the corresponding period of the previous year.

Interest rates: The average base rate of commercial banks decreased to 8.08% in mid-August 2020 from 9.45% a year ago. The weighted average deposit rate and lending rate of commercial banks stood at 5.77% and 10.47% respectively in mid-August 2020. Such rates were 6.77% and 12.08% respectively a year ago.