Inflation keeps its high at 8.64 pc, BoP remained at deficit of Rs 23.68 bn

KATHMANDU: The year-on-year consumer price inflation remained at 8.64 percent in the second month of 2022-23 compared to 3.49 percent a year ago. Food and beverage inflation stood at 8.17 percent whereas non-food and service inflation stood at 9.02 percent in the review month.

According to Nepal Rastra Bank data released on Friday, under the food and beverage category, the prices of fruit, ghee & oil, restaurant & hotel, alcholic drinks and vegetable sub-categories increased by 17.29 percent, 14.53 percent, 12.30 percent, 10.24 and 9.94 percent respectively on y-o-y basis.

Under the non-food and services category, the prices of transportation, health, furnishing & household equipment, education and housing & utilities sub-categories increased by 23.41 percent, 10.54 percent, 9.25 percent, 8.11 percent and 7.69 percent respectively on y-o-y basis in the review month.

In the review month, consumer price inflation in the Kathmandu Valley, Terai, Hill and Mountain stood at 7.62 percent, 9.33 percent, 8.82 percent and 6.68 percent respectively. Inflation in these regions were 3.23 percent, 3.65 percent, 3.96 percent and 3.51 percent respectively a year ago.

Wholesale Price Inflation

The y-o-y wholesale price inflation increased by 14.00 percent in the review month compared to 3.11 percent a year ago. The y-o-y wholesale price of consumption goods, intermediate goods and capital goods increased by 12.91 percent, 15.93 percent and 6.36 percent respectively in the review month. The wholesale price of construction materials increased by 19.36 percent in the review month.

Salary and Wage Rate Index

The y-o-y salary and wage rate index increased by 11.68 percent in the review month. Such a growth rate was 4.84 percent a year ago. In the review month, salary index and wage rate index increased by 12.39 and 11.46 percent respectively.

Consumer Price Inflation in Nepal and India

The y-o-y consumer price inflation in Nepal as of mid-September 2022/23 remained 8.64 percent.
Such inflation in India stood at 7.41 percent in September 2022.

Merchandise Trade

During the two months of 2022/23, merchandise exports decreased 34.9 percent to Rs.28.68 billion against an increase of 115.4 percent in the same period of the previous year. Destination-wise, exports to India and China decreased 45.2 percent and 21.6 percent respectively whereas exports to other countries increased 13.2 percent.

Exports of zinc sheet, woolen carpets, particle board, readymade garments, medicine (ayurvedic), among others, increased whereas exports of soyabean oil, palm oil, oil cakes, cardamom, toothpaste, among others, decreased in the review period.

During the two months of 2022-23, merchandise imports decreased 13.0 percent to Rs.273.60 billion against an increase of 75.9 percent a year ago. Destination-wise, imports from India, China and other countries decreased 9.5 percent, 13.3 percent, and 20.7 percent respectively.

Imports of petroleum products, chemical fertilizer, sponge iron, medicine, aircraft & spare parts, among others, increased whereas imports of transport equipment & parts, silver, crude soyabean oil, hot rolled sheet in coil, M.S. billet, among others, decreased in the review period.

Based on customs points, exports from Dry Port, Jaleshwor, Kailali, Krishnanagar, Mechi and Tribhuwan Airport Customs Offices increased whereas exports from all the other major customs points decreased in the review period. On the import side, imports from Dry Port, Jaleshwor, Krishnagar and Tatopani Customs Offices increased whereas imports from all the other major customs points decreased in the review period.

Total trade deficit decreased 9.4 percent to Rs.244.92 billion during the two months of 2022/23. Such a deficit had increased 70.8 percent in the corresponding period of the previous year. The export import ratio decreased to 10.5 percent in the review period from 14.0 percent in the corresponding period of the previous year.

During the two months of 2022/23, merchandise imports from India by paying convertible foreign currency amounted Rs.26.23 billion. Such amount was Rs.36.27 billion in the same period of the previous year.

Composition of Foreign Trade

As per the Broad Economic Categories (BEC), the intermediate and final consumption goods accounted for 57.8 percent and 42.2 percent of the total exports respectively, whereas the ratio of capital goods in total exports remained negligible at 0.03 percent in the review period. In the same period of the previous year, the ratio of intermediate, capital and final consumption goods remained 38.7 percent, 0.02 percent and 61.3 percent of total exports respectively.

On the imports side, the share of intermediate goods remained 53.7 percent, capital goods 8.7 percent and final consumption goods remained 37.7 percent in the review period. Such ratios were 53.7 percent, 11.4 percent and 34.8 percent respectively in the same period of the previous year.

Export-Import Price Index

The y-o-y unit value export price index, based on customs data, increased 5.6 percent and the import price index increased 13.6 percent in the second month of 2022/23. The terms of trade (ToT) index decreased 7.0 percent in the review month compared to a decrease of 3.0 percent a year ago.

Services

Net services income remained at a deficit of Rs.18.62 billion in the review period compared to a deficit of Rs.17.52 billion in the same period of the previous year.

Under the service account, travel income increased 72.2 percent to Rs.5.95 billion in the review period which was Rs.3.46 billion in the same period of the previous year.

Under the service account, travel payments increased 62.7 percent to Rs.17.95 billion, including Rs.12.76 billion for education. Such payments were Rs.11.03 billion and Rs.6.37 billion respectively in the same period of the previous year.

Remittances

Remittance inflows increased 19.8 percent to Rs.187.04 billion in the review period against a decrease of 5.8 percent in the same period of the previous year. In the US Dollar terms, remittance inflows increased 11.3 percent to 1.47 billion in the review period against an decrease of 5.3 percent in the same period of the previous year.

Number of Nepali workers (institutional and individual-new) taking approval for foreign employment increased 169.9 percent to 103,898 in the review period. Likewise, the number of Nepali workers (Renew entry) taking approval for foreign employment increased 70.6 percent to 39,189 in the review period. It had increased 429.5 percent in the same period of the previous year.

Net transfer increased 19.5 percent to Rs.206.46 billion in the review period. Such a transfer had decreased 6.0 percent in the same period of the previous year.

Current Account and Balance of Payments

The current account remained at a deficit of Rs.37.18 billion in the review period compared to a deficit of Rs.106.08 billion in the same period of the previous year. In the US Dollar terms, the current account registered a deficit of 291.71 million in the review period compared to deficit of 895.85 million in the same period last year.

In the review period, capital transfer increased 16.9 percent to Rs.1.46 billion and net foreign direct investment (FDI) remained a negative of Rs.809.7 million. In the same period of the previous year, capital transfer and net FDI amounted to Rs.1.25 billion and Rs.3.04 billion respectively.

Balance of Payments (BOP) remained at a deficit of Rs.23.68 billion in the review period compared to a deficit of Rs.94.80 billion in the same period of the previous year. In the US Dollar terms, the BOP remained at a deficit of 185.90 million in the review period compared to a deficit of 800.93 million in the same period of the previous year.

Foreign Exchange Reserves

Gross foreign exchange reserves decreased 2.2 percent to Rs.1189.16 billion in mid September 2022 from Rs.1215.80 billion in mid-July 2022. In the US dollar terms, the gross foreign exchange reserves decreased 2.0 percent to 9.35 billion in mid-September 2022 from 9.54 billion in mid-July 2022.

Of the total foreign exchange reserves, reservs held by NRB decreased 0.5 percent to Rs.1051.53 billion in mid-September 2022 from Rs.1056.39 billion in mid-July 2022. Reserves held by banks and financial institutions (except NRB) decreased 13.7 percent to Rs.137.63 billion in mid-September 2022 from Rs.159.41 billion in mid-July 2022. The share of Indian currency in total reserves stood at 24.3 percent in mid-September 2022.

Foreign Exchange Adequacy Indicators

Based on the imports of two months of 2022/23, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 9.0 months, and merchandise and services imports of 7.7 months. The ratio of reserves-to-GDP, reserves-to-imports and reserves-to-M2 stood at 24.5 percent, 64.6 percent and 21.8 percent respectively in mid-September 2022. Such ratios were 25.1 percent, 57.8 percent and 22.1 percent respectively in mid-July 2022.

Price of Oil and Gold

The price of oil (Crude Oil Brent) in the international market increased 19.0 percent to US dollar 89.43 per barrel in mid-September 2022 from US dollar 75.14 per barrel a year ago. The price of gold decreased 4.8 percent to US dollar 1664.65 per ounce in mid-September 2022 from US dollar 1747.95 per ounce a year ago.

Exchange Rate

Nepalese currency vis-à-vis the US dollar appreciated 0.23 percent in mid-September 2022 from mid-July 2022. It had appreciated 1.49 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.127.22 in mid-September 2022 compared to Rs.127.51 in mid-July 2022.

Federal Government

Expenditure and Revenue

During the two months of 2022/23, total expenditure of the federal government according to data of Financial Comptroller General Office (FCGO), Ministry of Finance, stood at Rs.134.34 billion. The recurrent expenditure,
capital expenditure and financial expenditure amounted to Rs.108.73 billion, Rs.5.86 billion and Rs.19.75 billion respectively in the review period.

In the review period, revenue mobilization (including the amount to be transferred to provincial and local governments) stood at Rs.143.81 billion. The tax revenue and non tax revenue amounted Rs.130.70 billion and Rs.13.11 billion respectively in the review period.

Cash Balance

Balance at various accounts of the GoN maintained with NRB remained Rs.266.38 billion (including Provincial government and Local Authorities Account) in mid-September 2022. Such a balance was Rs.227.69 billion in mid-July 2022.

Provincial Government

34. In the review period, total resource mobilization of provincial governments remained Rs.17.38 billion. The federal government transferred Rs.9.53 billion as grants and revenue from federal divisible fund to provincial governments and the provincial governments mobilized Rs.7.85 billion in terms of revenue and other receipts in the review period. In the review period, total expenditure of provincial governments stood at Rs.7.20 billion.

Money Supply

Broad money (M2) decreased 1.1 percent in the review period in contrast to an increase of 0.2 percent in the corresponding period of the previous year. On y-o-y basis, M2 expanded 5.5 percent in mid-September 2022.

The net foreign assets (NFA, after adjusting foreign exchange valuation gain/loss) decreased Rs.23.68 billion (2.1 percent) in the review period compared to a decrease of Rs.94.80 billion (7.1 percent) in the corresponding period of the previous year.

Reserve money decreased 0.9 percent in the review period compared to a decrease of 11.1 percent in the corresponding period of the previous year. On y-o-y basis, reserve money decreased 1.2 percent in mid-September 2022.

Domestic Credit

Domestic credit increased 0.6 percent in the review period compared to an increase of 3.1 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 11.6 percent in mid-September 2022.

Monetary Sector’s claims on the private sector increased 1.7 percent in the review period compared to an increase of 6.5 percent in the corresponding period of the previous year. On y-o-y basis, such claims increased 8.2 percent in mid-September 2022.

Deposit Mobilization

Deposits at Banks and Financial Institutions (BFIs) decreased 0.9 percent in the review period compared to an increase of 0.7 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 7.4 percent in mid-September 2022.

The share of demand, saving, and fixed deposits in total deposits stands at 7.7 percent, 26.5 percent and 58.8 percent respectively in mid-September 2022. Such shares were 7.9 percent, 35.0 percent and 49.2 percent respectively a year ago.

The share of institutional deposits in total deposit of BFIs stands at 37.2 percent in mid-September 2022. Such a share was 40.5 percent in mid-September 2021.

Credit Disbursement

Private sector credit from BFIs increased 0.5 percent in the review period compared to an increase of 5.7 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 7.5 percent in mid-September 2022.

The shares of private sector credit from BFIs to non-financial corporation and household stand at 65.1 percent and 34.9 percent respectively in midSeptember 2022. Such shares were 63.9 percent and 36.1 percent a year ago.

45. In the review period, private sector credit from commercial banks and development banks increased 0.4 percent and 1.5 percent respectively while that of finance companies decreased 0.1 percent.

In the review period, out of the total outstanding credit of the BFIs, 66.6 percent is against the collateral of land and building and 12.5 percent against the collateral of current assets (such as agricultural and non-agricultural products). Such ratios were 66.9 percent and 12.2 percent respectively a year ago.

In the review period, outstanding loan of BFIs to industrial production sector credit increased 3.5 percent, transportation, communication and public sector 1.2 percent, wholesale & retail sector 1.4 percent, service industry sector 2.6 percent and construction sector 0.7 percent, while that of agriculture sector credit decreased 0.7 percent.

In the review period, term loan extended by BFIs increased 2.4 percent, overdraft 4.4 percent, trust receipt (import) loan 2.1 percent, demand and working capital loan 1.2 percent, real estate loan (including residential personal home loan) 3.3 percent, hire purchase loan 0.2 percent whereas margin nature loan decreased 5.8 percent.

Liquidity Management
In the review period, NRB injected Rs. 1780.02 billion liquidity of which Rs.111.57 billion was through repo, Rs.14.85 billion through outright purchase auction and Rs.1653.60 billion through standing liquidity facility (SLF).

In the review period, NRB injected liquidity of Rs.100.46 billion through the net purchase of USD 789 million from foreign exchange market. Liquidity of Rs.300 million was moped up through the net sale of USD 3.9 million in the corresponding period of the previous year.

The NRB purchased Indian currency (INR) equivalent to Rs.117.23 billion through the sale of USD 920 million in the review period. INR equivalent to Rs.68.82 billion was purchased through the sale of USD 580 million in the corresponding period of previous year.

Refinance, Concessional Loan and Business Continuity Loan

The outstanding amount of refinance provided by NRB remained Rs.108.49 billion in mid-September 2022.

As of mid-September 2022, the outstanding concessional loan is Rs.213.23 billion extended to 147,926 borrowers. Of which, Rs.139.67 billion has been extended to 60,302 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs. 70.10 billion loan has been extended to 84,790 women entrepreneurs. Total 2,834 borrowers have availed Rs.3.46 billion concessional loan in other sectors.

Business continuity loan has been extended to the Covid-19 affected tourism, cottage, small and medium industries for payment of salaries to workers and employees in line with ‘Business Continuity Loan Procedure, 2020’. The outstanding loan extended under this provision is Rs. 0.90 billion as of mid-September 2022

Inter-bank Transaction

In the review period, BFIs interbank transactions amounted Rs.647.59 billion including Rs.580.52 billion inter-bank transactions among commercial banks and Rs.67.06 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions was Rs.648.31 billion including Rs.557.30 billion among commercial banks and Rs.91 billion among other financial institutions (excluding transactions among commercial banks).

Interest Rates

The weighted average 91-days treasury bills rate remained at 9.09 percent in the second month of 2022/23, which was 3.98 percent in the corresponding month a year ago. The weighted average inter-bank transaction rate among commercial banks, which was 4.75 percent a year ago, increased to 8.50 percent in the review month. The average inter-bank rate of BFIs which is considered as operating target of monetary policy, stood 8.50 percent in the review month. Such a rate was 4.68 percent a year ago.

57. The average base rate of commercial banks increased to 10.01 percent in the second month of 2022/23 from 6.89 percent a year ago. Weighted average deposit rate and lending rate of commercial banks stood at 7.81 percent and 12.06 percent respectively in the review month. Such rates were 4.92 percent and 8.57 percent respectively a year ago.

Merger and Acquisition

After introduction of merger and acquisition policy aimed at strengthening financial stability, the number of BFIs involved in this process reached 247 as of mid-September 2022. Out of which, the license of 179 BFIs was revoked thereby forming 68 BFIs

Financial Access

Of the total 753 local levels, commercial banks extended their branches at 752 levels as of mid-September 2022. The number of local levels having commercial bank branches was 750 a year ago .

The total number of BFIs licensed by NRB remained 125 in mid-September 2022 (Table 5). As of mid-September 2022, 26 commercial banks, 17 development banks, 17 finance companies, 64 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 11,585 in mid-September 2022 from 11,528 in mid-July 2022.

Electronic Payment Transaction

Electronic payment transaction has increased significantly due to the development of payment infrastructure, policy of encouraging electronic payments and gradual adoption of electronic payment instruments.