The central bank has informed that inflation rate has increased by a staggering 7.6 percent in the first six months of the current fiscal year.
Earlier, the Nepal Rastra Bank (NRB) had revised inflation rate for the current fiscal year and projected it at 6.6 percent from an earlier projection of 6 percent citing price increase in major food items and petroleum products.
Speaking at a programme ‘Mid-term Review of Monetary Policy 2006/07’ in Kathmandu on Wednesday, Executive Director of the central bank Ram Prasad Adhikari informed that economic growth would slow down this year and projected the revised growth at 3.8 percent from the previous projection of five percent.
The NRB has blamed this poor projection on the worse performance by agriculture sector due to a sharp decline in paddy production.
According to the NRB, Nepal’s trade deficit continues to widen and crossed Rs 52.72 billion during the review period. During the period, total exports declined by 0.9 percent to Rs 26.59 billion, while total imports surged by 8.5 percent to Rs 79.73 billion.
Due to a sharp rise in imports from India, the NRB was compelled to purchase Rs 17.72 billion Indian Currency (IC) worth $390 million from the Reserve Bank of India to maintain the IC reserve level. The NRB had purchased IC worth $290 million last year.
However, Adhikari informed that foreign currency reserve is satisfactory during the review period.
According to NRB, the government expenditure has increased by 11.9 percent in the review period and reached to Rs 44.77 billion rupees. The report further said that the revenue has increased by 19.7 percent and reached Rs 37.8 billion in the review period.
The foreign grant has increased by 56.7 percent in the review period and reached to Rs 7.93 billion rupees.
Speaking at the programme, governor of the NRB Bijaya Nath Bhattarai urged banks and financial institutions to be prepared for post-2010 period, when Nepal opens its financial sector to all as per its commitment for the accession of the World Trade Organisation.
Citing Nepal’s commitment to the WTO agreement that allows international banks and finance companies to expand their network and services, Bhattarai said that international giants would have adequate capital, better network, competent human resources and technology advantage.
Speaking at the same programme, Radesh Panta, president of Nepal Bankers’ Association asked the central bank to introduce some pragmatic instruments in order to mop up liquidity in the banking system.
He further warned that there is a risk of capital flight if the central bank did not initiate concrete efforts in this regard.