February 13: The macroeconomic indicators of the first six months of the current fiscal year have shown a mixed performance of the Nepali economy. A report prepared by Nepal Rastra Bank on the current macroeconomic and financial situation of Nepal has predicted inflation to remain below the annual limit of seven percent.
The report states that non-agricultural activities continues to gather momentum but the growth in farm output is likely to be less than expected.
According to the report, a steady growth in electricity generation, improved supply situation and a pick-up in construction activities are expected to help maintain pace in non-agricultural activities.
“While the torrential summer rains contributed to the growth in maize production, the widespread floods in the plains hit the paddy production. On account of these factors, the overall economic growth is expected to remain satisfactory in 2017/18,” states the report.
The CPI based inflation has remained moderate. The volatility in prices of agricultural items and the behavior of prices of construction materials as well as petroleum products are likely to determine the inflation outlook going forward. However, given the smooth supply situation and the global policy vigilance on prices, inflation is expected to remain below the annual limit of seven percent.
The credit off-take continues to exceed the growth in deposit. Given the decline in the migrant workers’ remittances, the growth in deposit is expected to remain moderate. Once this becomes a key consideration for planning credit, financial imbalances currently seen will get corrected in due course of time, the report further states.
On the external front, current account has recorded a deficit of relatively a higher magnitude of Rs 75.71 billion on account of elevated level of imports and a decline in remittances in the first six months of 2017/18. As a consequence, country’s balance of payments has also remained in a deficit of Rs 6.66 billion in the review period. However, international reserves are at a comfortable level to sustain 10.6 months’ imports of goods and services. This level of international reserves is adequate to provide a cushion for external sector stability at least in the near term.
Inflation, Salary and Wage Rate
Consumer price inflation has increased to 4 percent in mid-January 2018 from 3.2 percent in mid-December 2017. A pick up in prices of food items contributed to an increase in inflation in the review period.
Food inflation surged to 2.4 percent in mid-January 2018 from the negative growth of 0.7 percent in the corresponding period of the previous year. A rise in prices of vegetable, milk product and eggs, fruits, ghee and oil, cereal grains and their products, meat and fish, among others, accounted for an increase in overall food inflation in the review period.
Non-food inflation decelerated to 5.3 percent during the review period from 6.2 percent in the corresponding period of the previous year. The slower growth in prices of clothes and footwear, furnishing and household equipment, health, education, among others, contributed to the deceleration of non-food inflation in the review period.
National Salary and Wage Rate
The year-over-year salary and wage rate index decelerated to 6.1 percent in the review period compared to a rise of 14.1 percent in the corresponding period of the previous year. In the review period, the salary index increased by 9.7 percent and the wage rate index grew by 5.1 percent. The salary indices of private institutions, bank and financial institutions and education sub-groups increased 36.3 percent, 10.6 percent and 5.8 percent respectively in the review period. Likewise, wage rate indices of agricultural, industrial and construction laborer witnessed a growth of 4.8 percent, 6.6 percent and 3.1 percent respectively in the review period.