Unveiling the mid-term review report of the monetary policy, NRB Governor Chiranjibi Nepal on Sunday said that the central bank decided to make upward revision of inflation target keeping in view the recent disruption in supply system.
The inflation, as measured in Consumer Price Index (CPI), marched to 12.1 percent in mid-January against the NRB target of containing it at 8.5 percent. The prolonged unrest in the Tarai region and disruption of trade routes in the southern parts of the country are the reasons behind rising inflation.
The central bank, however, has said it was optimistic about keeping it below double-digit rate, stating that supply system has improved in recent days.
NRB counts price rigidity effect, appreciation of US dollar in the international market and demand side pressure with the reconstruction after the earthquake as the major factors for its decision of upward revision of the inflation target.
"Inflation is currently at double-digit because of supply and structural constraints in the national economy. The forecast is that the inflation rate will come down from the current 12.1 percent in coming months with the easing of supply management," Governor Nepal said.
Regarding the economic growth target, NRB seconded the government's downward revision to 2 percent during its mid-term review of the fiscal policy.
NRB has not made any other major revisions in its mid-term review of the monetary policy, stating that it needs to retain the direction of the policy 'balanced' also in the remaining period of the current fiscal year.
It has decided to keep its cash reserve ratio, statutory liquidity ratio for bank and financial institutions and refinance rates unchanged for the next half year period.
Similarly, the slowdown in economic activities as well as lending of BFIs due to the recent devastating earthquakes, Tarai turmoil and unofficial economic blockade imposed by India led the central bank to lower its estimate of private sector credit growth to 17.5 percent, down from its earlier projection of 20 percent.
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