MACROECONOMIC UPDATE 1 : MONEY SUPPLY (APRIL 2020)
Money plays an important role in an economy and is a key component of the transmission mechanism from monetary policy to economic activity and inflation. Conceptually, the notion of money has been linked to the formulation of monetary policy and the need for money growth to be in line with the desired real growth rate and level of inflation, given an assumption on the velocity of money. Monetary growth can also impact on asset prices in an economy. Money aggregates measure the money available to money-holding sectors in the economy for making purchases of goods, services, nonfinancial assets and financial assets, and are closely monitored by the central bank when determining decisions that affect the short-term policy interest rate and/or the level of the monetary base. The value for broad money (M2) growth (annual %) in Nepal was 15.30% as of 2019/20. As the graph below shows, over the past five years this indicator reached a maximum value of 23.6 in fiscal year 2015/16 and a minimum