This macroeconomic report is prepared based on five 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 on Mid-Dec 2019 inclined by 0.467% to close at 1154.12 points, compared to 1148.78 points in the same period last year. The market capitalization of NEPSE as well increased from NPR 1,370.36 billion in Mid-Dec 2018 to NPR 1,466.05 billion in Mid-Dec 2019.
On the other hand, the ratio of market capitalization of NEPSE to GDP as on Mid-Dec 2019 has dropped down to 42.32% compared to 45.21% 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 stands at 0.78% in Mid-Dec 2019 indicating some liquidity ease in the banking system. The interbank rate during the same period a year ago stood at 1.20%.
The base rate of commercial banks stands at 9.46% in Mid-Dec 2019 compared to 10.30% a year ago, which means borrowing money from bank has become slightly cheaper compared to a year ago. This has set the weighted average lending rate at 11.93%. On the other hand, the weighted average deposit rate stands at 6.80%. Such rates were 12.32% and 6.62% respectively in the corresponding month of the previous year.
C. INFLATION RATE
The consumer price inflation which was 3.70% a year ago significantly inclined to 6.55% in Mid-Dec 2019 mainly due to rise in Food & Beverage inflation as well as Non-food & Service inflation which stood at 9.76% and 4.10% respectively in the review month.
Within the food and beverage group, prices of vegetables, spices, fruits and pulses and legumes sub-groups spiked in the review month. Whereas, within the non- food and service group, the prices of education, clothes and footwear and furnishing and household equipment subgroups rose moderately in the review month.
D. DEPOSIT AND LENDING GROWTH
Deposit Growth: The deposits of BFI’s as at Mid-Dec 2019 increased by 3.55% to NPR 3,472.99 billion, compared to NPR 3,353.93 billion in Mid-July 2019. The growth during the same period last year was 6.21%. The share of demand, saving, and fixed deposits in total deposits stood at 8.10 percent, 32.00 percent, and 49.10 percent respectively in Mid-Dec 2019. Such shares were 8.80 percent, 33.40 percent, and 47.50 percent respectively a year ago. The share of institutional deposits in total deposit of BFIs stands at 45.40 percent in Mid-Dec 2019. Such share was 45.10 percent in Mid-Dec 2018.
Credit Growth: The credit disbursement of BFI’s as at Mid-Dec 2019 increased to NPR 3,081.76 billion by 5.83%, compared to NPR 2,911.90 billion in Mid-July 2019. The growth during the same period last year was 10.09%. Of the total outstanding credit of BFIs in Mid-Dec 2019, 64.70 percent is against the collateral of land and building and 13.60 percent against the collateral of current assets (such as agricultural and non-agricultural products). Such ratios were 63.30 percent and 14.60 percent respectively a year ago.
In the review period, the loan of BFIs to agriculture sector increased 5.60 percent, industrial production sector increased 6.8 percent, construction sector increased 7.70 percent, transportation, communication and public sector increased 8.0 percent and service industry sector increased 7.7 percent.
If we compare the credit growth rate of 5.83% with the deposit growth rate of 3.55%, 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. 100.35 billion liquidity was mopped up in the corresponding period of the previous year.
In the review period, Rs. 90.07 billion liquidity was injected including 39.52 billion through repo and Rs.50.55 billion through standing liquidity facility (SLF). Rs. 5.72 billion was injected through SLF in the corresponding period of the previous year. Moreover, NRB injected net liquidity of NPR 161.99 billion through the net purchase of USD 1.42 billion from foreign exchange market. Net liquidity of NPR 126.64 billion was injected through the net purchase of USD 1.1 billion in the corresponding period of the previous year.
F. FISCAL SITUATION
During five months of 2019/20, fiscal position of the Government based on banking transactions remained at a surplus of Rs. 62.23 billion compared to a surplus of Rs. 37.56 billion in the corresponding period of the previous year.
In comparison to five months of FY 2018/19, the expenditure of federal government increased by 5.15% to reach at NPR 287.840 billion. On the other hand, the revenue of the government witnessed a growth of 6.07% compared to corresponding period of the last fiscal year. The government revenue in the fifth month of this fiscal year stood at NPR 318.622 billion compared to NPR 300.392 billion in the fifth month of the last fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is at surplus in the fifth month of FY 2019/20 by NPR 23.297 billion compared to a deficit of NPR 85.324 billion during the same period last year. On the other hand, the current account is at deficit by NPR 70.315 billion compared to a deficit of NPR 119.333 billion in the same period of last year.
In the review period, capital transfer and foreign direct investment (FDI) in Nepal amounted to Rs. 5.65 billion and Rs. 6.57 billion respectively. In the same period of the previous year, capital transfer and FDI amounted to Rs. 5.27 billion and Rs. 6.78 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 fifth month’s data of FY 2019/20 shows that worker’s remittance growth has witnessed a decline of 0.7% to reach at $3320.03 million compared to 19.25% growth in 2018/19.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance declined by 0.10% to NPR 376.99 billion during the fifth months in FY 2019/20 compared to a growth of 31.91% during the same period in FY 2018/19.
Net transfer receipt decreased 0.8 percent to Rs. 425.36 billion in the review period. Such receipt had increased 29.8 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 increased 11.8 percent in the review period. It had decreased 38.4 percent in the same period of the previous year. The number of Nepalese workers (Renew entry) migrated for foreign employment increased 7.60 percent in the review period. It had decreased 1.4 percent in the same period of the previous year.