Nepal | September 24, 2020

Keeping inflation at 7.5 pc tough: NRB

Rupak D Sharma
Share Now:

We’ll do all we can to attain that target
— NRB Deputy Governor Chinta Mani Siwakoti

Nepal Rastra Bank

Nepal Rastra Bank. Photo: THT/ File

Kathmandu, June 13

Officials of Nepal Rastra Bank, the central monetary authority, are scratching their heads, as they are trying to find out ways to offset the impact of distributive budget on consumer prices.

On May 28, Finance Minister Bishnu Prasad Paudel introduced a budget of Rs 1,048.9 billion for the next fiscal year up 28 per cent from the the current fiscal year.

Despite the launch of such a big spending plan, of which 59 per cent has been allocated for recurrent expenditure, the budget document has fixed inflation target for the next fiscal at 7.5 per cent.

This means NRB, which must ensure price stability, should not allow prices of consumer goods and services to rise beyond 7.5 per cent in the next financial year.

“Maintaining inflation at that level in the next fiscal will be a tough job. But we will abide by the instruction and do all we can to attain that target,” NRB Deputy Governor Chinta Mani Siwakoti told The Himalayan Times.

The inflation target announced by the finance minister was incorporated in the budget document based on NRB’s recommendation. But NRB had fixed that target on the basis of next fiscal’s budget ceiling of around Rs 908 billion initially extended by the National Planning Commission to the Ministry of Finance, according to Siwakoti.

Later, the finance ministry decided to exceed the budget ceiling by 15.5 per cent, but kept the inflation target unchanged at 7.5 per cent.

Now, as NRB is all set to frame the Monetary Policy for the next fiscal year, it has found itself in a tight spot because it does not want to annoy the government by revising the inflation target; but if it does not do so it runs the risk of setting an unrealistic target, which will have to be revised during the mid-term review of the Monetary Policy.

Generally, when the government comes up with expansionary fiscal policy (budget), NRB tries to introduce a contractionary monetary policy in order to control money supply and tame inflation. But the fiscal policy of next fiscal year has targeted economic growth rate of 6.5 per cent, as against this fiscal’s 0.8 per cent.

So, NRB does not have the luxury of introducing a very contractionary monetary policy, as it would limit money supply and stifle growth.

“In this regard, we are thinking of setting broad money supply growth target of around 22 per cent for the next fiscal, (as against the revised growth estimate of 21.5 per cent for the current financial year),” Siwakoti said.

Although the money supply growth estimate, as per Siwakoti, ‘is preliminary and can be revised at a later date’, the proposed target is four percentage points higher than at the time when NRB had fixed inflation target of 7.5 per cent based on NPC’s budget ceiling.

So the revision in money supply growth target indicates additional inflationary pressure will most likely be created in the next fiscal.

On top of that, derived inflation from India and supply-side constraints, as always, will continue to put upward pressure on prices.

A version of this article appears in print on June 14, 2016 of The Himalayan Times.

Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

Photo Gallery: People wait days to get tested for COVID-19 at Teku

KATHMANDU, SEPTEMBER 23 Labourers along with their families who arrived in Kathmandu from India and other regions of Nepal, four-days ago, sleep on the floor of Teku Hospital premise, waiting their turns to get testedpast midnight. Pictures taken by Skanda Gautam for The Himalayan Times. Read More...

BTS to perform everyday for a week on Jimmy Fallon's show starting September 28

KATHMANDU: K-pop juggernaut BTS is all set to perform every night for a week on NBC's The Tonight Show Starring Jimmy Fallon from September 28. According to The Korea Times, the show announced the special 'BTS Week' on Septmeber 22. The group ― comprising RM, Jin, Suga, J-Hope, Jimin, V a Read More...

India's narcotics cell summon Bollywood stars Deepika Padukone, Sara Ali Khan, Shraddha Kapoor, Rakul Preet Singh

KATHMANDU: In the latest development of the drug case related to the death of Bollywood actor Sushant Singh Rajput, the Narcotics Control Bureau (NCB) of India on September 23 issued summons to four stars from Bollywood — Deepika Padukone, Sara Ali Khan, Shradhha Kapoor and Rakul Preet Singh. T Read More...

Bollywood actress Payal Ghosh files FIR against filmmaker Anurag Kashyap for rape

KATHMANDU: Bollywood actress Payal Ghosh has filed an FIR against filmmaker Anurag Kashyap accusing him of rape, wrongful restrain, wrongful confinement and outraging the modesty of a woman. According to IANS, Ghosh's lawyer Nitin Satpute shared details of the FIR in a statement in the early hou Read More...

Nepal denies claims of construction by Chinese side within its territory

KATHMANDU: The Ministry of Foreign Affairs (MoFA) has denied claims of construction of buildings by China within Nepali territory between Nepal-China boundary pillars. Issuing a statement on Wednesday, MoFA stated that it has taken note of media reports on alleged construction between Nepal-China Read More...

Chinese encroachment in Humla? China denies it, so does MoFA

Buildings have been built at a distance of around two kilometres from the border in Lapcha Limi area of Namkha Rural Municipality in Humla: NC lawmaker Rangamati Shahi KATHMANDU, SEPTEMBER 23 China has allegedly built at least nine buildings on Nepali land near Nepal-China border in Humla distri Read More...

Supreme Court tells government not to induct Gautam in Cabinet

KATHMANDU, SEPTEMBER 23 The Supreme Court today ordered the government not to induct Bamdev Gautam in the Cabinet or assign him any such post till the apex court issued another order in the case. Gautam was recently nominated to the National Assembly by the president on the government’s recommend Read More...

Overnight wait for PCR test for scores

KATHMANDU, SEPTEMBER 23 Sukraraj Tropical and Infectious Disease Hospital at Teku has been seeing a surge in the number of people visiting the hospital for polymerase chain reaction test. The number of people visiting the hospital for the tests has drastically increased after the government al Read More...