June 30: Economists have cautioned Nepal Rastra Bank (NRB) regarding the formulation of monetary policy citing the lack of balance between the projected economic growth in the budget and the inflation rate. Economists expressed their concerns on the issue in a program organised by Management Association of Nepal on June 29. The government in the budget for the fiscal year 2016/17 has set the growth target at 6.5 percent and lowering the inflation to 7.5 percent.

“Monetary policy should also challenge the government. If it could not be done, then NRB should announce to maintain the inflation rate on-par with the rate projected by the Finance Ministry,” said former NRB Governor Dipendra Bahadur Chettri. Prof Dr Bishombhar Pyakurel and Tulraj Basyal also agreed with Chettri mentioning that NRB can do a very little to control the stubbornly high inflation rate.

“It is very difficult to control inflation. NRB alone cannot stop the flow of money,” Pyakurel said. “Our study has shown that inflation rises by 4 percent with 10 percent increment in liquidity.”  He labelled the budget of upcoming FY as expansionary budget. “As inflation has spiked before the increase in the flow of money, it is not sure whether the inflation rate increases by 50 or 100 percent,” he informs.

Meanwhile, Tulraj Basyal opined that the government has encouraged inflation rate expectation by formulating an expansionary budget. He adds that low government expenses will also increase possibility of inflation growth. He presented statistics on NRB’s failure in controlling the current currency circulation. “Decrease in demand deposit indicates of degrading trust of general people in the economy.”