Inflation on rise

Kathmandu, May 7:

The inflation is balloning due to rise in the prices of food articles like rice and rice products, and oil and ghee. According to the current macroeconomic situation based on first eight months’ data, it stood at 7.2 per cent in mid-March compared to 6.2 per cent in the corresponding period last year.

The report by the central bank paints a bleak picture as the budget is also at deficit of Rs 6.99 billion due to higher growth of government expenditure. In the same period last year, the budget was at the surplus of Rs 1.18 billion. Of the sources of deficit financing, government mobilised domestic borrowing of Rs 9.20 billion (excluding overdraft), states Nepal Rastra Bank’s (NRB) report.

In the review period, the net domestic borrowing remained at a negative of Rs 433.14 million as the government repaid domestic borrowing worth Rs 5.29 billion. In the first eight months, government expenditure, on a cash basis, increased by 32.5 per cent to Rs 80.34 billion compared to an increase of 15 per cent in the same period last year, states the report. However, revenue mobilisation has increased by 26.2 per cent to Rs 60.61 billion compared to an increase of 16.4 per cent in the corresponding period last year.

According to the central bank, liquid funds of commercial banks also increased by 6.8 per cent to Rs 69.61 billion in the review period.

“Commercial banks have Rs 129.95 billion liquid assets as of mid-March 2008, including Rs 60.34 billion holding of government securities,” states the report.

A net liquidity of Rs 54.99 billion was injected through foreign exchange intervention in the review period compared to Rs 44.43 billion last year.

The higher inflow of remittances in the review period increased the purchase of the US dollar in the foreign exchange market.

For managing liquidity of banking system, a total of Rs 9.27 billion has been absorbed in open market operation including Rs 5.57 billion through reverse repo auctions and Rs 3.7 billion through outright sale auctions in the review period. “A short-term liquidity shortfall was observed by some commercial banks in the review period on account of over subscription in initial public offering of shares by ADB/N and the issuance of electricity bond by Nepal Electricity Authority,” it states.

Total exports went down by 2.6 per cent compared to a decline of 6.6 per cent in the corresponding period last year, according to the report. “Of the total exports, export to India plummeted by 6.9 per cent in 2007-08 compared to a decline by 6.4 per cent in the same period of 2006-07.” The drop in the exports to India was largely due to the fall in the exports of vegetable ghee, textiles, chemicals, wire and thread.

The overall Balance of Payment (BoP) has, however, posted a surplus of Rs 13.29 billion in the review period. It had registered a surplus of Rs 12.28 billion in the corresponding period last year.