Nepal Rastra Bank (NRB) has introduced a new ‘monetary instruments’ to control inflation and bring about price stability.

Bijay Nath Bhattarai (File Photo)

Bijay Nath Bhattarai (File Photo)
Releasing a mid-term review of monetary policy on Wednesday, governor of NRB, Bijay Nath Bhattarai, said that the central bank has revised bank rates by 25 basis points to 6.25 percent from an earlier level of six percent which is expected to bring about stability in the money market and prices, according to newspaper reports.

Bhattarai said that the supply shock, especially of oil prices, has generated pressure on the overall price level.

Keshav Acharya, chief of research department at the NRB, said that a hike in petroleum prices has increased inflationary pressures. He also said that due to internal conflict, there is a greater government expense and a larger budget deficit.

“The Nepalese economy continues to suffer from the decade long insurgency and has lately been victim of bad weather. Economic growth is expected to remain modest and less than the target initially set,” said Acharya.

The government has targeted to achieve economic growth rate of 4.5 to 5 percent during the current fiscal year.

According to the review, the overall trade deficit during the first half of the current fiscal year has increased by 24 percent to Rs 54 billion mainly due to higher growth in imports compared to exports. Imports from India against the payment of convertible currency have increased Rs 12.82 billion from August to December 2005.

According to NRB, the total international reserve, during the first five months of current fiscal year, has gone up to Rs 140 billion, which is enough to finance merchandise imports for over ten months. However, the reserve of Indian currency, which used to constitute over 10 percent of the total reserve in 2003, has slipped to 4.5 percent.

The NRB has purchased Indian currency worth US$ 290 million during the first six months to ensure smooth supply of Indian currency.