Central bank projects price hike, lower growth

Nepal Rastra bank (NRB) has upwardly revised its earlier inflation target of 7.5 per cent to 11 per cent.
During the mid-term Monetary Policy review here today, the central bank not only revised its inflation target but also slashed the growth target that was projected at seven per cent. "Though globally prices are coming down, the price hike in the domestic market could not be brought down due to non-monetary factors," said NRB governor Dipendra Bahadur Chhetri.
He said that the central bank can bring a strict Monetary Policy to control the prices but fearing its negative impact on private sector, it is reluctant to do so. "We will continue with a lenient monetary policy," he said adding that the central bank could not control money supply only to curb inflation as that would hit private sector hard.
"The growth of seven per cent also could not be achieved," Chhetri admitted adding that the growth would be lower. Though, he did not specifically say what the growth target would be, the Central Bureau of Statics based on the first six months' data has projected 3.8 per cent growth during this fiscal year. "Regular hours of power crisis and low investor confidence give little space for growth this fiscal year," according to the review. The lower projection not only debunks the Monetary Policy's tall claims but also reflects the impact of the global financial crisis that has hit the major labour destinations.
The mid-term evaluation underlines that the declining number of tourists and outbound Nepali workers might shake economic foundations. "Decreasing number of incoming tourists and outbound blue-collar Nepali job seekers will bleed the economy white," the governor said adding that the central bank, however, is hopeful that the new market -- like Libya -- for Nepali labourers might give some respite to remittance that is the life-line of the economy.
The review did not change key variables such as cash reserve ratio (CRR) as the advisor of the government is satisfied with the measures it took in the Monetary Policy.
However, the governor expressed serious concern over the government's inability to spend. "High revenue mobilisation and less spending will result in the contraction of liquidity," he said adding that the at present overall liquidity of the economy was in a comfortable position.