This macroeconomic report is prepared based on three month’s data of FY 2076/77 published by NRB. The key macro-economic indicators and variables are highlighted in the table below, and explained in further section:
A. NEPSE and Ratio of Market Cap to GDP
The NEPSE index as at Mid-Oct 2019 declined by 8.37% to close at 1,137.75 points, compared to 1,241.63 points in the same period last year. The market capitalization of NEPSE as well decreased from NPR 1,481.22 billion in Mid-Oct 2018 to NPR 1,445.56 billion in Mid-Oct 2019.
On the other hand, the ratio of market capitalization of NEPSE to GDP as at Mid-Oct 2019 has dropped down to 41.73% compared to 48.87% in the last year during the same review period.
B. INTEREST RATES
To evaluate the current scenario of interest rate in the economy, interbank rate and base rate of commercial banks are taken into consideration.
The interbank rate of commercial banks which reached a year-high of 6.91% in Mid-June 2019 is again starting to incline to reach at 4.62% in Mid-Oct 2019 indicating tight liquidity in the banking system as a result of slow pace in government expenditure. The interbank rate during the same period a year ago stood at 1.86%.
The base rate of commercial banks stands at 9.56% in Mid-Oct 2019 compared to 10.23% a year ago. This has set the weighted average lending rate at 11.98%. On the other hand, the weighted average deposit rate stands at 6.75%. Such rates were 12.26% and 6.57% respectively in the corresponding month of the previous year.
C. INFLATION RATE
The consumer price inflation which was 4.70% a year ago significantly inclined to 6.21% in Mid-Oct 2019 mainly due to rise in Food & Beverage inflation as well as Non-food & Service inflation which stood at 7.04% and 5.55% respectively in the review month.
Within the food and beverage group, prices of vegetable, fruit, spice, meat and fish spiked in the review month. Likewise, within the non- food and service group, prices of the items in housing and utilities; clothes and footwear; and education sub-groups rose significantly.
D. DEPOSIT AND LENDING GROWTH
Deposit Growth: The deposits of BFI’s as at Mid-Oct 2019 increased by 2.60% to NPR 3,441.28 billion, compared to NPR 3,353.93 billion in Mid-July 2019. The growth during the same period last year was 2.67%. The share of demand, saving, and fixed deposits in total deposits stood at 8.2 percent, 33 percent, and 47.80 percent respectively in Mid-Oct 2019. Such shares were 8 percent, 35 percent, and 46.20 percent respectively a year ago. The share of institutional deposits in total deposit of BFIs stands at 44.80 percent in Mid-Oct2019. Such share was 43.80 percent in Mid-Oct 2018.
Credit Growth: The credit disbursement of BFI’s as at Mid-Oct 2019 increased to NPR 3035.31 billion by 4.24%, compared to NPR 2,911.90 billion in Mid-July 2019. The growth during the same period last year was 7.21%. Of the total outstanding credit of BFIs in Mid-Oct 2019, 64.40 percent is against the collateral of land and building and 13.70 percent against the collateral of current assets (such as agricultural and non-agricultural products). Such ratios were 63.10 percent and 14.40 percent respectively a year ago.
In the review period, the loan of BFIs to agriculture sector increased 2.00 percent, industrial production sector increased 5.40 percent, construction sector increased 4.40 percent, transportation, communication and public sector increased 5.40 percent and service industry sector increased 6.30 percent.
If we compare the credit growth rate of 4.24% with the deposit growth rate of 2.60%, then the credit crunch is likely to reoccur again if the deposit growth rate couldn’t matchup with the credit demand.
E. LIQUIDITY MANAGEMENT
In the review period, NRB mopped up Rs.30 billion liquidity through open market operations. Rs.95.35 billion liquidity was mopped up in the corresponding period of the previous year.
In the review period, Rs. 89.32 billion liquidity was injected including 39.52 billion through repo and Rs.49.80 billion through standing liquidity facility (SLF). Rs. 3.42 billion was injected through SLF in the corresponding period of the previous year. Moreover, NRB injected net liquidity of NPR 102.22 billion through the net purchase of USD 898.50 million from foreign exchange market. Net liquidity of NPR 80.75 billion was injected through the net purchase of USD 699.10 million in the corresponding period of the previous year.
F. FISCAL SITUATION
During three months of 2019/20, fiscal position of the Government based on banking transactions remained at a surplus of Rs. 46.38 billion compared to a surplus of Rs. 32.83 billion in the corresponding period of the previous year.
In comparison to three months of FY 2018/19, the expenditure of federal government increased by 0.80% to reach at NPR 172.33 billion. On the other hand, the revenue of the government witnessed a growth of 2.42% compared to corresponding period of the last fiscal year. The government revenue in the third month of this fiscal year stood at NPR 198.00 billion compared to NPR 193.32 billion in the third month of the last fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is at surplus in the third month of FY 2019/20 by NPR 14.43 billion compared to a deficit of NPR 35.42 billion during the same period last year. On the other hand, the current account is at deficit by NPR 27.18 billion compared to a deficit of NPR 81.74 billion in the same period of last year. In the review period, capital transfer and foreign direct investment (FDI) in Nepal amounted to Rs. 3.68 billion and Rs. 4 billion respectively. In the same period of the previous year, capital transfer and FDI amounted to Rs. 3.55 billion and Rs. 1.54 billion respectively.
The workers’ remittance growth rate is subject to differ in terms of US Dollar and Nepalese Currency based on exchange rate of NPR with US Dollar. Hence, the workers’ remittance growth in terms of US Dollar and NPR has been presented below:
Remittance in Dollar Terms
In US Dollar terms, the three month’s data of FY 2019/20 shows that worker’s remittance growth has witnessed a decline of 4.58% to reach at $2,033.21 million compared to 24.49% growth in 2018/19.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance declined by 4.93% to NPR 230.24 billion during the three months in FY 2019/20 compared to a growth of 37.34% during the same period in FY 2018/19.
Net transfer receipt decreased 3.70 percent to Rs. 260.77 billion in the review period. Such receipt had increased 33.40 percent in the same period of the previous year. As per the data of Department of Foreign Employment, the number of Nepalese workers (institutional and individual-new and legalized) migrated for foreign employment decreased 3.70 percent in the review period. It had decreased 34.80 percent in the same period of the previous year. The number of Nepalese workers (Renew entry) migrated for foreign employment decreased 0.90 percent in the review period. It had decreased 4.70 percent in the same period of the previous year.