Non-economic factors pushing inflation up

Non-economic factors are contributing to the rising inflation, according to a senior central bank official.

"Non-economic factors, coupled with supply side constraints have increased pressure on inflation," said deputy governor of Nepal Rastra Bank (NRB) Maha Prasad Adhikari, here, today.

The fiscal policy, as well as the monetary policy, had a target to contain inflation to a single digit at 7.5 per cent. However, inflation, according to the central bank figure for the first seven months, stood at 10.1 per cent, inviting criticism of the government and central bank for failing to crack a whip on inflation.

"Economic factors are still at manageable levels," he said, adding that Nepal imports inflation also from India, where inflation is looking up.

Despite low money supply, inflation has not been under the control of the central bank and the government, also due to the government's lack of market monitoring. "Broad money supply (M2) increased by 4.6 per cent in the first seven months of the current fiscal year 2012-13, as compared to an increase of 11.6 per cent in the same period last fiscal year," according to NRB that has, however, revealed that the year-on-year Consumer Price Index inflation increased by 10.1 per cent in mid-February as compared to seven per cent a year ago.

Though the budget for the current fiscal year promised to monitor the market, it has always remained under question due to lack of results.

"The government will maintain smooth supply of food items, essential goods, chemical fertilisers and petroleum products," promised finance minister Shankar Koirala today too. However, the technically bankrupt Nepal Oil Corporation, despite being a state oil monopoly has been unable to supply petroleum products that are being sold at a profit.

Except for liquefied petroleum gas (LPG), NOC has been selling all petroleum products at a profit but has been unable to maintain smooth supply. Likewise, it hiked the price of petroleum products repeatedly last year, putting additional pressure on inflation.

The budget has also focused on import substitution by promoting domestic production, the minister said, citing the example of cement in which the country has the potential to manufacture in the country itself instead of importing, if the government can build basic infrastructure.

However, the budget has focused mainly on the Constituent Assembly (CA) election and sustainable development along with economic growth and economic stability, he added. "Export-friendly policy will be adopted to minimise the export-import gap, apart from developing, expanding, diversifying and marketing goods that have comparative and competitive advantages.

Finance secretary Shanta Raj Subedi and member of National Planning Commission (NPC) Janak Raj Shah also spoke at the post-budget interaction.