Low money supply fails to bring inflation down
KATHMANDU, June 16:
The reduced expansion of money supply might have contributed in the marginal inflation in first nine mo-nths of current fiscal year.
The 10.7 per cent inflation was recorded by mid-April, according to the Nepal Rastra Bank (NRB)’s macroeconomic data of the first nine months. During the period, the broad money (M2) increased by 3.3 per cent and narrow money (M2) declined by 0.6 per cent. In the corresponding period last fiscal year, inflation stood at 14.3 per cent when the broad money was 6.9 per cent and narrow money was 3.3 per cent.
Money supply is considered to be one of the most effective tools of the central bank to control inflation and to propel economic growth. As the monetary authority of the nation the job of monitoring the money supply falls on the shoulders of Nepal Rastra Bank (NRB).
The central bank expands and contracts the money supply in the manner that economic growth is not affected while keeping reins on the inflation.
“Money supply can be partially responsible in containing the inflation, however there are other factors that contributes in controlling and propelling inflation,” said NRB spokesperson Bhaskar Mani Gyanwali.
However, in the economy like Nepal, money supply alone can not determine the direction of prices due to existence of parallel informal economy. The economists have been cautioning the concerned bodies to bring the informal financial sectors -especially credit and saving cooperatives -within the formal channels so that monetary measures becomes more effective.
“Among the components of narrow money both the currency in circulation increased by 0.7 per cent to Rs 944.2 million. Another component -demand deposits declined by 2.9 per cent worth to Rs 2.1 billions,” stated the report.
However, time deposits have increased by five per cent in the review period, which had grown by 8.5 per cent in 2009-10.
According to the data, broad money supply stood at Rs 767.5 billion by the end of third quarter of the current fiscal year from Rs 743.5 billion in the beginning of the current fiscal year. Among the other factors affecting money supply, net foreign assets have also declined in the third quarter.
However, the relatively lower deficit in the Balance of Payments (BoP) saved net foreign assets from declining further than 6.9 per cent amounting to Rs 14.79 billion in the review period. The improvement in merchandise export and increased workers’ remittance along with the slight increment in the imports also controlled the net foreign assets from going further down.
The remittance has recorded at Rs 181.84 billion.
Source: THT
The reduced expansion of money supply might have contributed in the marginal inflation in first nine mo-nths of current fiscal year.
The 10.7 per cent inflation was recorded by mid-April, according to the Nepal Rastra Bank (NRB)’s macroeconomic data of the first nine months. During the period, the broad money (M2) increased by 3.3 per cent and narrow money (M2) declined by 0.6 per cent. In the corresponding period last fiscal year, inflation stood at 14.3 per cent when the broad money was 6.9 per cent and narrow money was 3.3 per cent.
Money supply is considered to be one of the most effective tools of the central bank to control inflation and to propel economic growth. As the monetary authority of the nation the job of monitoring the money supply falls on the shoulders of Nepal Rastra Bank (NRB).
The central bank expands and contracts the money supply in the manner that economic growth is not affected while keeping reins on the inflation.
“Money supply can be partially responsible in containing the inflation, however there are other factors that contributes in controlling and propelling inflation,” said NRB spokesperson Bhaskar Mani Gyanwali.
However, in the economy like Nepal, money supply alone can not determine the direction of prices due to existence of parallel informal economy. The economists have been cautioning the concerned bodies to bring the informal financial sectors -especially credit and saving cooperatives -within the formal channels so that monetary measures becomes more effective.
“Among the components of narrow money both the currency in circulation increased by 0.7 per cent to Rs 944.2 million. Another component -demand deposits declined by 2.9 per cent worth to Rs 2.1 billions,” stated the report.
However, time deposits have increased by five per cent in the review period, which had grown by 8.5 per cent in 2009-10.
According to the data, broad money supply stood at Rs 767.5 billion by the end of third quarter of the current fiscal year from Rs 743.5 billion in the beginning of the current fiscal year. Among the other factors affecting money supply, net foreign assets have also declined in the third quarter.
However, the relatively lower deficit in the Balance of Payments (BoP) saved net foreign assets from declining further than 6.9 per cent amounting to Rs 14.79 billion in the review period. The improvement in merchandise export and increased workers’ remittance along with the slight increment in the imports also controlled the net foreign assets from going further down.
The remittance has recorded at Rs 181.84 billion.
Source: THT
