This macroeconomic report is prepared based on seven 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 on Mid-Feb 2020 inclined by 19.30% to close at 1345.98 points, compared to 1128.19 points in the same period last year. The market capitalization of NEPSE as well increased from NPR 1,377.15 billion in Mid-Feb 2019 to NPR 1,717.50 billion in Mid-Feb 2020.
On the other hand, the ratio of market capitalization of NEPSE to GDP as on Mid-Feb 2020 has risen up to 49.57% compared to 45.43% 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 4.59% in Mid-Feb 2020 indicating some liquidity ease in the banking system. The interbank rate during the same period a year ago stood at 5.82%.
The base rate of commercial banks stands at 9.45% in Mid-Feb 2020 compared to 9.69% 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 11.94%. On the other hand, the weighted average deposit rate stands at 6.78%. Such rates were 12.34% and 6.67% respectively in the corresponding month of the previous year.
C. INFLATION RATE
The consumer price inflation which was 4.40% a year ago significantly inclined to 6.87% in Mid-Feb 2020, mainly due to rise in Food & Beverage inflation as well as Non-food & Service inflation which stood at 9.79% and 4.65% 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-Feb 2020 increased by 6.25% to NPR 3,563.64 billion, compared to NPR 3,353.93 billion in Mid-July 2019. The growth during the same period last year was 8.76%. The share of demand, saving, and fixed deposits in total deposits stood at 8.20 percent, 31.60 percent, and 49.90 percent respectively in Mid-Feb 2020. Such shares were 8.70 percent, 33.50 percent, and 47.60 percent respectively a year ago. The share of institutional deposits in total deposit of BFIs stands at 44.90 percent in Mid-Jan 2020. Such share was 44.80 percent in Mid-Feb 2019 too.
Credit Growth: The credit disbursement of BFI’s as at Mid-Feb 2020 increased to NPR 3,182.08 billion by 9.28%, compared to NPR 2,911.90 billion in Mid-July 2019. The growth during the same period last year was 14.11%. Of the total outstanding credit of the BFIs, 65.1 percent is against the collateral of land and building and 13.4 percent against the collateral of current assets (agricultural and non-agricultural products). Such ratios were 63.4 percent and 14.5 percent respectively a year ago.
In the review period, the loan of BFIs to agriculture sector increased 10.9 percent, industrial production sector increased 10.3 percent, construction sector increased 10.2 percent, transportation, communication and public sector increased 10.2 percent and service industry sector increased 11.8 percent in the review period.
If we compare the credit growth rate of 9.28% with the deposit growth rate of 6.25%, 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.58 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. 161.19 billion liquidity was injected including 91.64 billion through repo and Rs.69.55 billion through standing liquidity facility (SLF). Rs. 27.75 billion was including Rs. 21.03 billion through repo and Rs. 6.72 billion through SLF in the corresponding period of the previous year. Moreover, NRB injected liquidity of Rs.230.09 billion through the net purchase of USD 2.02 billion from foreign exchange market. Liquidity of Rs.197.66 billion was injected through the net purchase of USD 1.72 billion in the corresponding period of the previous year.
F. FISCAL SITUATION
During seven months of 2019/20, fiscal position of the Government, based on banking transactions, remained at a surplus of Rs.116.11 billion compared to a surplus of Rs.57.74 billion in the corresponding period of the previous year.
In comparison to seventh months of FY 2018/19, the expenditure of federal government increased by 8.11% to reach at NPR 449.225 billion. On the other hand, the revenue of the government witnessed a growth of 13.29% compared to corresponding period of the last fiscal year. The government revenue in the seventh month of this fiscal year stood at NPR 515.897 billion compared to NPR 455.390 billion in the seventh month of the last fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is at surplus in the seventh month of FY 2019/20 by NPR 21.613 billion compared to a deficit of NPR 49.323 billion during the same period last year. On the other hand, the current account is at deficit by NPR 112.152 billion compared to a deficit of NPR 166.674 billion in the same period of last year.
In the review period, capital transfer and foreign direct investment (FDI) in Nepal amounted to Rs.8.31 billion and Rs.14.38 billion respectively. In the same period of the previous year, capital transfer and FDI amounted to Rs.7.43 billion and Rs.5.15 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 seventh month’s data of FY 2019/20 shows that worker’s remittance growth has witnessed a decline of 0.21% to reach at $4,514.73 million compared to 16.04% growth in 2018/19.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance declined by 0.45% to NPR 513.21 billion during the seventh months in FY 2019/20 compared to a growth of 28.46% during the same period in FY 2018/19.
Net transfer income decreased 1.1 percent to Rs.579.94 billion in the review period. Such income had increased 27.3 percent in the same period of the previous yearyear. As per the data of Department of Foreign Employment, the number of Nepalese workers (institutional and individual-new and legalized) migrated for foreign increased 21.7 percent in the review period. It had decreased 37.5 percent in the same period of the previous year. The number of Nepalese workers (Renew entry) migrated for foreign employment decreased 0.6 percent in the review period. It had increased 4.9 percent in the same period of the previous year.