Kathmandu, February 17 At a time when commercial banks are being criticised from all sides for their haphazard lending, the macroeconomic update of the first six months of this fiscal (mid-July to mid-January) unveiled today by Nepal Rastra Bank (NRB) shows the market is in a corrective mode. “Higher level of deposit mobilisation relative to loans extended in recent days shows that the market is in a corrective mode,” says the NRB report. While the growth in deposits collected by banks and financial institutions (BFIs) in the review period stood at 7.2 per cent, credit growth was six per cent. This can be attributed to the attractive interest rates being offered by commercial banks on fixed deposits to lure clients in recent days. However, the outstanding loans of BFIs on overdraft, margin nature, real estate and hire purchase increased significantly in mid-January 2017 from the level of a year ago, the central bank report shows. In the previous month’s macro report, the central bank had flagged the share of lending to such unproductive sectors, which could result in financial instability. Today’s report shows that of the total lending of BFIs, credit to real estate (including personal home loan of up to Rs 10 million) was 15.1 per cent — that is, Rs 286.30 billion. In contrast, the credit to small and medium enterprises was only 2.7 per cent or Rs 42.73 billion. Meanwhile, there has been financial friction recently due to the narrowing wedge between deposit and loan growth. Liquidity injection through open market operations taken together with forward guidance issued by NRB recently has, however, reduced financial frictions to some extent, the report says. In terms of trade, merchandise exports increased by 14.8 per cent to Rs 36.27 billion compared to a drop of 27.2 per cent in the same period of the previous year. But at the same time, merchandise imports increased 67.3 per cent to Rs 464.61 billion, compared to a drop of 25.7 per cent in the same period of the previous year. This resulted in widening of the total trade deficit by 74 per cent to Rs 428.33 billion compared to a contraction of 25.5 per cent in the same period last year. The export-import ratio stood at 7.8 per cent in the review period compared to 11.4 per cent in the corresponding period of the previous year. Based on the imports of the first six months of current fiscal year, the foreign exchange holdings of the banking sector is sufficient to cover prospective merchandise imports of 14.3 months, and merchandise and services imports of 12.4 months, the central bank report says. Notwithstanding a significant growth in imports, the country’s balance of payments is in surplus leading to an accumulation of international reserves. Nonetheless, the continuous deceleration in remittance growth is a matter of concern, according to the macroeconomic report. The workers’ remittances increased 5.7 per cent to Rs 342.23 billion in the review period compared to a growth of 17.3 per cent in the corresponding period of the previous year. The number of workers going abroad for foreign employment has been falling in recent years, owing to a slowdown in the economies of the Gulf nations. The number of Nepali workers seeking foreign employment, based on final approval for foreign employment, decreased 9.9 per cent in the first six months of 2016-17. It had decreased by 22.5 per cent in the same period of the previous year. Still, overall, the report says the current macroeconomic indicators show the resiliency of Nepal’s economy. “For example, industrial capacity utilisation is expected to boost on the back of improved power supply and smooth supply of raw materials. The completion of the long awaited Khimti-Dhalkebar transmission line is expected to strengthen the power supply. This has the potential to improve the industrial climate further.” Tourist arrivals have picked up and significant growth in paddy production is expected to boost agricultural output. “Together with the increased agricultural output, a recovery in tourism and industrial output is likely to improve growth outlook going forward.” Government budgetary operation continues to be strong. A significant growth in government revenue is reflected in budgetary surplus leading to a significant rise in treasury surplus of Rs 217.6 billion as of mid-January. Inflation at 3.2 per cent KATHMANDU: The country’s inflation has been decelerating in recent months, reducing inflation wedge between Nepal and India to a zero level in the sixth month of this fiscal, according to the macroeconomic update unveiled by Nepal Rastra Bank on Friday. The inflation rate moderated to 3.2 per cent in mid-January this year from a peak of 12.1 per cent of mid-January, 2016. The year-on-year inflation is continuously decelerating in recent months mainly due to the base effect, improved supply situation and deceleration in Indian inflation, as per the NRB report. Food inflation declined to 0.7 per cent in mid-January from 15.2 per cent in the corresponding period of the previous year. The non-food inflation also moderated to 6.2 per cent in the review period from 9.7 per cent in the corresponding period of the previous year. The consumer price inflation was 3.2 per cent in India also in January 2017. Hence, there was no inflation wedge between the two countries. The only threat to inflation is from global rise of oil prices, says the central bank.