Monetary measures not enough to control price rise: Governor

The central bank governor has expressed that monetary policy measures are not sufficient to control inflation in the Nepali economy due to its structural nature. “Since inflation in Nepal is more of supply-driven, monetary policy has limited ammunition to keep such price rise on track,” said Nepal Rastra Bank (NRB) governor Dr Yubaraj Khatiwada, during a workshop organised by NRB’s Banking Training Centre here, today. NRB — the monetary authority of Nepal — has been struggling to rein in the ever-increasing price that refuses to slow down. “Monetary measures can help affect demand-driven inflation by controlling the money supply so that excessive demand that is driving prices up can be managed,” pointed out Dr Khatiwada. According to governor, production input both in agriculture and manufacturing sectors has increased due to higher input costs — of labour and other raw materials, transportation cost has gone up and market distortions such as cartelling has made all products — food and non-food — expensive. However, he added that the monetary policy can indirectly help in influencing supply side factors as well. “The monetary policy can channel the financing to enhance productive capacity so that pressure on price rise can be tackled,” he said. The rate of price rise stands at 8.7 per cent by 10th month of current fiscal year. Till eighth month, inflation had remained above 10 per cent as prices of both commodities and services belonging to food and non-food groups had been raging. Moreover, the perennial price rise pushed NRB to revise its inflation estimate for the fiscal year to 9.5 per cent from 7.5 per cent. “Moreover, monetary policy has to balance the growth rate and inflation dynamics, and to attain higher growth rate, the monetary policy has to be expansionary so that more economic activities are undertaken, but at the same time it puts pressure on price as well,” said Dr Khatiwada, stressing that higher growth rate and low inflation rate is mutually exclusive to an extent. The governor also urged Nepali export industries to take advantage of the current depreciation of the Nepali currency against the US dollar. “Exporters who expect cash incentive from the government to increase exports should cash in on the current opportunities provided by the depreciated Nepali currency and increase supply,” he said.