The mid-term evaluation of the Monetary Policy for the current fiscal year released today underlined that the declining number of tourists and outbound Nepali workers are early warnings that the country’s major economic foundations are at risk.
“The economy has started witnessing the impacts of the global financial crisis by the beginning of the second half of the current fiscal year and it is likely to squeeze the economic growth rate targeted for the current fiscal year,” said the report.
However, the central bank, which has been facing a bubby trap of high price rises and low growth, didn’t touch key variables such as the bank rate and cash reserve ratio (CRR), among others, to alter the volume of cash liquidly available in the market.
Instead, despite weak growth prospects estimated to remain slightly more than half the seven percent target, the mid-term evaluation governor of the NRB said the central bank will continue to peruse a light monetary policy.
“The high inflation which touched 14.4 percent by the first half of the current fiscal year and was expected to remain at 11 percent on annual average is really a worrisome development,” said NRB governor Deependra Kshytri addressing a program organized to release the mid-term evaluation.
“We are not in a position to control money supply just to curb inflation, because it will raise the cost of capital, further deteriorating credit flow to the private sector, and hurting already weak growth,” the governor told those assembled at a program to launch the report.
Indicating a squeezing the liquidity position of the money market, the central bank revealed it has injected a net of Rs 73.2 billion into the market during the first six months of the current fiscal year, whereas total injection during last fiscal year was Rs 102.4 billion.
“High revenue mobilization and negative growth seen in the government’s expenditure is also resulting in the liquidity position to contract,” said the report, which also stressed that despite some ups and downs, the overall liquidity of the economy is in a comfortable position.
The report added that the expected economic recovery during the current fiscal year remained much weaker than expected mainly due to the worsening power crisis and weakening investment confidence.
Pinpointing growing inflation and the possible impacts in the current account of the balance of payment due to the declining number of outgoing Nepal as two major challenges of the economy, the central bank said that the task of monetary management has become challenging due to the persisting negative interest rate on deposits, high inflation and uncertain external sectors.
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