Unveiling the mid-term review of Monetary Policy 2014/15 here on Monday, the central bank said country´s economy will grow by 5 percent in the current fiscal year. NRB says tepid growth in agro-production will hurt economic growth.
"Growth outlook of industrial output and service sector growth is positive. However, agriculture sector will grow merely by 2 percent. To six percent economic growth in this scenario, non-agricultural sector growth should be at 8 percent which is almost impossible. Thus, we (NRB) have concluded that the six percent economic growth for this year is unattainable," NRB Governor Yuba Raj Khatiwada said, unveiling the report.
The central regulatory bank has, however, kept its projection of inflation rate unchanged at 8 percent. However, Khatiwada revealed that the central regulatory bank was making internal preparation to contain inflation at 7 percent.
“We are not agreeing to cut inflation forecast because we have some inherent risks in the economy. We see unwarranted or artificial price hike from the risks emanating from transportation disruption or any other obstacles in supply management. So, other external factors can create problems in our supply management,” he said, adding, “Thus we have put some space in the projection rate so that we can contain inflation below eight percent."
Likewise, NRB has not made any change in major regulatory reserve requirements, like cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for the banks and financial institutions (BFIs).
Monetary Policy 2014/15 requires commercial banks, development banks and finance companies to maintain CRR of 6, 5 and 4.5 percent, respectively. Likewise, commercial banks, development banks and finance companies are required to maintain SLR of 12 percent, 9 percent and 8 percent, respectively.
With the price of petroleum products plunging in international market, NRB has also noted that such decline could help the country in maintaining price stability and reducing trade deficit.
While the NRB Governor seemed to be elated with the success of commercial banks in bringing their average interest spread below five percent, he, however, expressed concern over ´ ´over-correction´ of deposit rates by BFIs. “The over-correction of deposit interest rates could be counterproductive to BFIs. Banks should reconsider their interest rates structure. They must revisit the interest rate for deposits,” he added.
Bankers have expressed concern of recent fall in deposit growth and rise in lending. “Remittance income has dropped despite surge in the number of foreign-bound workers and their salary. The fall in deposit and rise in lending could create dearth of resources for meeting the target of economic growth,” Upendra Poudyal, president of Nepal Bankers Association (NBA), said.
Deposit mobilization by BFIs rose 6 percent to Rs 83.76 billion in the review period, compared to the surge of eight percent (Rs 95.41 billion) in the corresponding period of the last fiscal year 2013/14. Similarly, while lending jumped 11.5 percent to Rs 131.9 billion compared to the surge of 8.9 percent in the same period of last fiscal year.
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