Nepali central bank issues new monetary policy

Nepal's central bank, Nepal Rastra Bank, has issued the monetary policy for the new fiscal year 2006/07, which starts on July 16, Nepali National News Agency RSS reported on Monday.

Forecasting an inflation rate of 6 percent, the new policy says low food inflation due to the prospect of good weather conditions and low level of global inflation owing to tight monetary policy stance by the global central banks are the underlying factors for the projection.

However, it acknowledged it is not easy to make accurate projection of inflation due to the elevated and volatile global oil prices.

According to the policy issued on Sunday, the revised estimates of annual average inflation stood at 8 percent for 2005/06 fiscal, higher than initially projected.

Upward adjustments in domestic oil prices in August 2005 and February 2006 due to the elevated level of global oil prices, a significant increase in transport fares by 25-28 percent in early 2006 and persistence of food inflation throughout the year fueled the overall prices in 2005/06.

For the new fiscal, the underlying factors of monetary projections are economic growth at 5 percent, inflation at 6 percent and a reasonable level of surplus in balance of payment.

The export-refinancing rate in local currency at the prevailing rate of 3.5 percent and refinancing rate for sick industry also remain unchanged at 1.5 percent, the policy added.

As per the policy and the budget estimates for the new fiscal year, the central bank will bring out and implement short-term and long-term programs relating to rural micro finance.

A bill relating to merger and acquisition of banks and financial institutions will also be drafted by the central bank while the limit of foreign exchange facilities to be provided by commercial banks to individuals and institutions has been raised up from 1,500 to 2,500 U.S. dollars, according to the policy.

Source: Xinhua