High inflation, BOP deficit major challenges: Governor

Nepal Rastra Bank (NRB) Governor Dr Bijay Nath Bhattarai has termed sustained double-digit inflation and lately emerged alarming deficit in the Balance of Payment (BOP) as the two major contemporary challenges that the economy is confronting.
Answering queries raised at the meeting of parliamentary Finance and Labor Committee held on Monday, the chief of Nepal´s monetary authority said it is worrisome that the inflation has again scaled up to cross double-digit. "In the past few months, we were able to limit inflation to a single-digit. But it is again rising back to double-digit," Bhattarai said.

He voiced concern over the huge deficit in BOP -- amounting over Rs 19 billion in the first quarter -- and added that it had hinted that difficult days are ahead if serious attention is not paid immediately. Boosting export and curtailing imports to lower widening trade deficit is the most appropriate tactics to deal with the problem, since raising remittance -- that has witnessed a sharp decline in its growth lately -- is something that government can do little to correct, he said. "The central bank is seriously thinking over a number of measures to boost exports and we expect the government to take non-monetary steps immediately," he said. However, he was quick to stress on the need to improve business doing environment, including addressing power crisis.

Governor Bhattarai also supported the idea of curbing consumption on certain goods like vehicles that can help ease down imports and expressed the hope that recent rise in lending rates will also address the issue to some extent. He also disclosed that the Indian central bank has recently communicated with the NRB to deal with the rising demand of Indian currency in Nepal and added that he was hopeful of finding a solution that will address Nepal´s need of Indian currency.

Earlier participating in the discussion, former finance minister and lawmaker Dr Ram Sharan Mahat said the BOP deficit figure is alarming and added that the figure would be much higher if under-invoicing and illegal imports are also properly calculated. Dr Mahat also said that even the devaluation of domestic currency will not help correct the deficit since Nepal´s demand elasticity on exports is very weak and said curbing non-essential imports like vehicles can be an option to lower the trade deficit.

Another lawmaker Dr Hari Roka expressed concern over the rising circulation of Indian currency in Nepal and suggested that encouraging Nepali banks to open branches in major Indian cities can help control flow of Indian currency into Nepal.
Source:Republica