This blog is a snapshot of the monthly report produced by the NRB on the basis of first five months data of 2021/22 (From mid-July 2021 to Mid-December 2021).
In a snapshot, it shows that :
-Increasing pressure is felt on inflation.
-External sector balance is deteriorating with rising imports and declining remittances.
-Labor out migration has significantly improved.
-Government's capital expenditure is sluggish while current expenditure as well as revenue mobilization has increased.
-Credit is expanding rapidly creating a pressure on resources and interest rates.
Details in the Blog
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Inflation
There has been a pressure in inflation in the recent months. The y-o-y consumer price inflation stood at 7.11 percent in the fifth month of 2021/22 compared to 2.93 percent a year ago.
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The rise in price level has been driven by housing, education, transportation and edible oil prices. Such rise account for more than 55 percent of the price rise in December 2021 on y-o-y basis.
External Sector
Nepalese economy is experiencing increasing pressure in the external sector in the recent months, arising from picking imports and falling remittances. As a consequence of this, current account deficit has deteriorated significantly and BOP deficit has increased. During the last five months, forex reserves has declined by Rs. 185 billion from Rs. 1399 billion to Rs.1214 billion.
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In the five months of 2021/22, while exports increased by 106 percent to Rs. 102 billion, imports increased by 59 percent to Rs. 838 billion, thereby creating a trade deficit of Rs. 736 billion.
Remittance inflows decreased 6.8 percent to Rs.388.58 billion against an increase of 11.0 percent in the same period of the previous year.
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Number of Nepali
workers taking approval for
foreign employment increased significantly to 131,082 in the review period. It
had decreased 92.7 percent in the same period of the previous year. The number of Nepalese workers to the top three destination countries i.e. Saudi Arabia, Qatar and UAE has increased significantly during the last five months.
Source : Click here
The current
account remained at a deficit of Rs.300.69 billion compared to a deficit of Rs.23.0 billion in the same period of the previous
year. BOP remained at a deficit of Rs.195.01 billion
against a surplus of Rs.106.48 billion in the same period of the previous year.
The pressure on the current account is the largest in the past five years. The current account deficit has crossed 6 percent of GDP compared to a maximum deficit of 3 percent during the past five years. Likewise, the BoP deficit has crossed 4 percent of GDP compared to a maximum of 2.2 percent during the last five years.
The foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 6.8 months only.
Government Sector
Government expenditure has been sluggish during the past five months. While current expenditure as well as revenue mobilization has followed the past trend, capital expenditure has lagged behind.
Balance at various accounts of the GoN maintained with NRB remained Rs.291.19 billion in mid-Dec 2021 compared to Rs.194.70 billion in mid-July 2021.
Monetary Sector
Broad money (M2)
increased 1.3 percent in the review period compared to the growth of 7.4 percent
in the corresponding period of the previous year. On y-o-y basis, M2 expanded
14.9 percent in mid-December 2021.
There has been a mismatch in resource mobilization and credit growth from the few recent months creating pressure on interest rate. During the five months, deposits of Banks and Financial Institutions (BFIs) increased by 1.7 percent whereas private sector
credit from BFIs increased 10.4 percent.On absolute term, deposits grew by Rs. 78 billion compared credit growth of Rs. 423 billion.
Pressure on resources has created an upward pressure on interest rates. The weighted average inter-bank transaction rate among commercial banks, which was 0.10 percent a year ago, increased to 4.96 percent in the review month. The average base rate of commercial banks stood 8.25 percent in the fifth month of 2021/22 which was 7.36 percent a year ago. Weighted average deposit rate and lending rate of commercial banks stood at 6.24 percent and 9.29 percent respectively in the review month. Such rates were 5.14 percent and 9.37 percent respectively a year ago
To address the the liquidity pressure in the banking system, In the five months of 2021/22, , NRB injected Rs.2721.06 billion liquidity of which Rs.287.23 billion was through repo, Rs.27.22 billion through outright purchase and Rs.2406.62 billion through standing liquidity facility (SLF).
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The blogger can be reached at siddhabhatta@gmail.com
