Inflation to remain at 6 percent in 2006/07: NRB

July 23, 2006
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The monitory policy of 2006/07, published by the Nepal Rastra Bank (NRB) has forecasted six percent inflation in the fiscal year 2006/07.

Governor of the NRB, Bijaya Nath Bhattrai. nepalnews.com/rh

Governor of the NRB, Bijaya Nath Bhattrai. nepalnews.com/rh
The monetary policy made public by the governor of the NRB, Bijaya Nath Bhattrai said, “Low food inflation due to the prospect of good weather conditions and low level of global inflation owing to tight monetary policy stance by the global central banks are the underlying factors for inflation projection at six percent. However it is not easy to make accurate projection of inflation due to the elevated and volatile global oil prices.”

The report further said that domestic oil price adjustment to the extent of compensating operating loss plus one third of the cumulative loss of NOC is estimated to drive the inflation up by three percent point.

The revised estimates of annual average inflation stands at 8 percent, higher than initially projected for 2005/06. Upward adjustments in domestic oil prices in August 2005 and February 2006 due to the elevated level of global oil prices, a significant increase in transport fares by 25–28 percent in early 2006 and persistence of food inflation throughout the year fueled the overall prices in 2005/06, the policy said.

The underlying factors of monetary projections are economic growth at 5 percent, inflation at 6 percent and a reasonable level of surplus in Balance of Payment (BoP).

The monetary policy projected net bank credit to the government of Nepal at Rs. 8.3 billion and bank credit to the private sectors is projected to grow by 18 percent in 2006/07.

The monitory policy maintained the export-refinancing rate in local currency at the prevailing rate of 3.5 percent and refinancing rate for sick industry also remained unchanged at 1.5 percent.

“Refinancing amounting to Rs. Two billion has been earmarked for sick industries for 2006/07. Refinancing amounting to Rs. 500 million has been sanctioned for loans provided to indigenous, ethnic, oppressed people and Nepalese women workers going to foreign countries for employment. Refinancing rate for this category will be at 1.5 percent,” the monitory policy said.

Governor Bhattrai has said that after the enactment of National Micro Finance Policy as proposed in the budget speech of 2006/07, NRB will bring out and implement short-term and long-term programmes relating to rural micro finance.

On the financial sector reforms, the policy said, as stated in the budget speech of 2006/07, willful defaulters have been allowed to schedule their loans within September 16, 2006. The NRB in close coordination with the government will initiate a process of taking strict action against those willful defaulters who do not settle or reschedule their debts within the stipulated time frame.

The policy said that though the non-performing loans (NPL) of commercial banks declined from 30.4 percent in mid-July 2002 to 18 percent in mid-April 2006, the NPL level of RBB and NBL could not improve significantly due to the recalcitrance on the part of some big borrowers in repaying their debt.

The Policy further said that Banking Fraud and Punishment Act and Anti-Money Laundering Bill will be enacted to discourage possible banking fraud and criminal activities, adding, the NRB will also take initiative to draft a bill relating to merger and acquisition of banks and financial institutions.

Governor Bhattrai further said that with a view to simplify the settlement of petty transactions, a limit of foreign exchange facilities to be provided by commercial banks to individuals and institutions has been raised up from US$ 1500 to US$ 2500.

Commercial banks themselves are allowed to provide foreign exchange facilities upto US$ 5000 for individuals and US$ 10,000 for a family (Nepalese citizens only) migrating with valid visa to developed countries like USA,

Canada, Australia, New Zeeland and UK. With a view to enhance the competitive edge of Nepalese industries, the monitory policy provision of allowing the import of raw materials and intermediate products from India against US dollar payment is put in place. The number of items allowed against US dollar payment from India currently stands at 91.

Bhattrai further said that the NRB will initiate and implement policy measures relating to entrepot trade. Nepalese traders will be allowed to sell goods imported through the import letter of credit from exporters of any other countries without entering the Nepal border at prices higher than the import prices to other countries.

Currently, Nepalese nationals who want to go on travel to SAARC countries other than India and Tibet, autonomous region of China through surface route are allowed the exchange facility of USD 300 per visit. This ceiling has been raised to USD 1000.