Current Macroeconomic situation of Nepal

Monetary Situation
Money supply
Broad money supply (M2) increased by 12.6 percent in the ten months of 2014/15 compared to the same
rate of increment in the corresponding period of the previous year. Likewise, narrow money supply (M1)
grew by 10.0percent in the review period compared to a growth of 9.9 percent in the same period of the
previous year. On year-on-year(y-o-y) basis, M2 expanded by 19.0 percent and M1 expanded by17.7
percent in mid-May 2015. 2. Net foreign assets (after adjusting foreign exchange valuation gain/loss)
increased by Rs. 101.15 billion (16.9 percent) during the review period compared to an increase of
Rs.115.26 billion (24.6 percent) in the corresponding period of the previous year .
The large slowdown in the growth of net foreign assets of the banking sector and a
marginal increase in net domestic assets 12 led to a slower growth of money supply.
The deceleration of remittance inflows and lower grant inflows contributed to the
slowdown in building up of net foreign assets. The decrease in M2 was reflected in
the 5.8% growth of narrow money (M1) and 6.1% growth of time deposits.
In the review period, NRB mopped up NRs75.0 billion through deposit auctions and
NRs260.5 billion through reverse repo auction. Deposit auction is a new monetary
instrument used by NRB to mop up excess liquidity and have been used since the
second month of FY2015. NRB mopped up Rs118.5 billion through reverse repo
auction in the corresponding period in FY2014. The weighted average interest
rate pertaining to reverse repo auctions has been between 0.0009% and 0.11%,
substantially lower than the ones in the corresponding period in FY2014.The slow
increase in private sector lending amidst excess
liquidity compelled the BFIs to invest in treasury bills carrying negligible interest
rates.
To finance the burgeoning imports from India, NRB sold $1.7 billion in the Indian
money market and purchased Indian currency equivalent to NRs171.1 billion in the
first half of FY2015. In the same period in FY2014, NRB had sold $1.4 billion to
purchase the Indian currency equivalent to NRs143.1 billion.

Domestic Credit
Domestic credit increased by 8.1 percent in the review period compared to a growth of 5.2 percent in the
same period of the previous year. On y-o-y basis, domestic credit increased by 15.8 percent in mid-May
2015. Increase in claims on the private sector as well as financial institutions resulted in a higher growth
of domestic credit in the review period. Likewise, claims on the private sector increased by 15.4 percent
in the review period compared to a growth of 14.7 percent in the corresponding period of the previous
year. On y-o-y basis, claims on the private sector increased by 19.0 percent in mid-May 2015 compared to
17.3 percent a year ago.

Reserve Money
4. Reserve money increased by 6.0 percent in the review period compared to an increase of 9.4 percent in
the corresponding period of the previous year. On y-o-y basis, reserve money increased by 19.4 percent in
mid-May 2015.

Deposit Mobilization
Deposits at banks and financial institutions (BFIs) increased by 12.4 percent (Rs. 175.02 billion) in the
review period compared to an increase of 11.6 percent (Rs. 137.47 billion) in the corresponding period of
the previous year. Deposits at commercial banks, development banks and finance companies increased by
13.7 percent, 2.1 percent and 0.4 percent respectively in the review period compared to the respective
increase of 10.9 percent, 18.8 percent and 5.0 percent in the same period of the previous year. On y-o-y
basis, deposits at BFIs expanded by 19.3 percent in mid-May 2015.
Credit Disbursement
Loans and advances of BFIs increased by 13.1 percent (Rs. 172.70 billion) in the review period compared
to a growth of 11.9 percent (Rs. 136.66 billion) in the corresponding period of the previous year. In the
review period, loans and advances of commercial banks, development banks and finance companies
increased by 14.5 percent, 2.7 percent and 3.3 percent respectively. Likewise, credit to the private sector
from BFIs increased by 15.0 percent (Rs. 167.91 billion) in the review period compared to an increase of
14.3 percent (Rs. 134.35 billion) in the same period of the previous year. Private sector credit from
commercial banks, development banks and finance companies increased by 16.9 percent, 8.7 percent and
5.1 percent respectively. On y-o-y basis, the credit to the private sector from BFIs increased by 19.5
percent in mid-May 2015.
Liquidity Management
In the ten months of 2014/15, the NRB mopped up liquidity of Rs. 105.0 billion through deposit auctions,
Rs. 279.80 billion through reverse repo auction on cumulative basis and Rs. 6.0 billion through outright
sale auction. In the corresponding period of the previous year, Rs. 426.00 billion was mopped up through
reverse repo and Rs. 8.50 billion through outright sale auction. As mentioned in the monetary policy
statement for 2014/15, the deposit auction has been introduced to mop up liquidity since the second
month of current fiscal year.
In the review period, the NRB injected net liquidity of Rs. 300.39 billion through the net purchase of
USD 3.09 billion from foreign exchange market (commercial banks). Net liquidity of Rs. 283.33 billion
was injected through the net purchase of USD 2.86 billion in the corresponding period of the previous
year.
The NRB purchased Indian currency (INR) equivalent to Rs. 284.77 billion through the sale of USD 2.88
billion in the review period. INR equivalent to Rs. 246.97 billion was purchased through the sale of USD
2.50 billion in the corresponding period of the previous year.

Inter-bank Transaction and Standing Liquidity Facility

In the review period, inter-bank transactions of commercial banks stood at Rs. 346.32 billion and those of
other financial institutions (excluding transactions among commercial banks) amounted to Rs. 186.32
billion. These were Rs. 185.15 billion and Rs. 140.87 billion respectively in the corresponding period of
the previous year. The BFIs used standing liquidity facility (SLF) of Rs. 7.87 billion in the review period.
Interest Rates
Both the weighted average of 91-days Treasury Bill rate and inter-bank transaction rates have increased
in the tenth month of 2014/15 compared to a year ago. The weighted average 91-days Treasury Bill rate
increased to 0.5904 percent in the review month from 0.04 percent a year ago. The weighted average
inter-bank transaction rate among commercial banks that was 0.19 percent a year ago reached 0.44
percent in the review month. Likewise, the weighted average inter-bank rate among other financial
institutions increased to 3.91 percent from 2.11 percent a year ago.

Short-term interest rates remained volatile and at times rose higher than the
corresponding months in FY2014, reflecting the central banks effectiveness
of liquidity management. Compared to the corresponding months in FY2014,
the 91-day Treasury bills weighted average interest rate was lower in the
first two months, higher in the next three months and then again lower in the
last month