| April 28, 2017
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Inflation still at 11.3% despite end of blockade

BOP surplus at Rs 154.5 billion
KATHMANDU, March 17: With the trade disruption in southern Nepal due to the Tarai turmoil and unofficial economic blockade by India coming to an end, the inflation in the country is also easing, though still at double digits.

The inflation, as measured in consumer price index (CPI), came down to 11.3 percent in mid-February of the current fiscal year 2015/16, compared to 12.8 percent of year-on-year CPI of 12.1 percent in the previous month of the current fiscal year, according to Nepal Rastra Bank (NRB).
Unveiling the Current Macroeconomic and Financial Situation of Nepal (based on seven months' data of 2015/16), the NRB said that the price rise has begun to moderate due to improvement in supply disruptions that had driven up the inflation over the last couple of months.

"The consumer price inflation has begun to moderate on account of improved supply of fuel and other consumable items following the return of normalcy in the southern customs points," read the periodic report of the central bank. However, the inflation is still 1.8 percentage points higher than the NRB's revised inflation target of 9.5 percent.

NRB voiced its optimism in its report stating that inflation will decline further in the coming months. "Going forward, inflation rate is likely to moderate gradually following the ease of trade routes in the southern parts of the country," it added.

According to NRB figures, food and beverage group inflation saw a jump of 12.8 percent while non-food and services group rose by 10.1 percent in the seventh month of the current fiscal year.

With inflation at 14.3 percent, Kathmandu Valley saw highest rise in prices as of mid-February. Hilly region followed suit with the region's inflation rate reaching 11.4 percent.

Following the protests in the Tarai and subsequent unofficial economic blockade imposed by India for nearly four months that started from the last week of September, inflation started to climb up due to the disruption in supplies. The spiraling price rises and stagnation in the economic output have led the central bank to conclude that the country could face 'stagflation' if the situation persisted.

BoP surplus at record Rs 154.5 billion

Meanwhile, the balance of payment (BoP) registered a record surplus of Rs 154.5 billion in the first seven months of the current fiscal year. The BoP, a statistical measurement that shows the transaction in goods, services and income between an economy and the rest of the world, set record due to the compression in imports over the last couple of months amid trade disruptions at the southern trade points. Similarly, rise in remittances as well as foreign grants and aids during the review period also contributed to the record BoP surplus. Earlier, BoP surplus was at all-time-high in the end of the last fiscal year 2014/15 when it rose to Rs 144.9 billion. "The import of the country has compressed significantly during the review period which boosted the BoP position of the country," said Nara Bahadur Thapa, an executive director of NRB.

According to NRB figures, merchandise imports dropped by 21.6 percent to Rs 345.83 billion in the review period as against a growth of 12.4 percent during the same period of the previous year. "Had it been a normal situation, the imports during the seven months would have risen by around 15 percent and the BoP would have been in a surplus of around Rs 10-12 billion. Rise in the remittance and foreign aid are the other factors that have driven up BOP toward a record surplus," added Thapa, who leads Research Department at the NRB. According to Thapa, BoP surplus acts as a cushion against any economic crisis and make the economy of the country resilient to such shocks while higher surplus also indicates that the foreign earnings have remained idle without much productive and development works going on inside the country.
Sagar Ghimire

Ghimire is associated with Republica, English National Daily, since November 2013. He reports and writes on banking, financial, cooperatives, labor and foreign employment issues.

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