KATHMANDU, July 8: The Nepal Rastra Bank (NRB) has unveiled a flexible monetary policy for the fiscal year 2026/27, placing greater emphasis on private sector investment and credit expansion to support the government's target of achieving 7 percent economic growth.
The central bank said the policy aims to create a supportive monetary environment by stimulating economic activity and boosting private sector confidence.
NRB stated that it has retained its cautiously accommodative stance as Nepal's external sector remains stable, foreign exchange reserves are comfortable, and inflation is under control.
Announcing the policy on Tuesday, Governor Dr. Bishwo Nath Poudel said commercial banks will be encouraged to invest in foreign government securities to help absorb excess liquidity generated through foreign currency purchases.
"The banking system currently has ample liquidity, and interest rates remain at favorable levels," the monetary policy states. "The government's fiscal measures, expansion of public spending, income tax cuts, and broader economic reforms are expected to boost aggregate demand."
The central bank expects liquidity management to remain challenging due to continued remittance inflows, tourism earnings, and government spending. It has set a target to keep average inflation below 5.5 percent in the coming fiscal year.
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The policy also aims to maintain foreign exchange reserves sufficient to cover at least seven months of imports of goods and services. NRB said it will strengthen liquidity management, open market operations, and foreign exchange management.
Under the new policy, the bank rate, policy rate, and standing deposit facility rate remain unchanged. The Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and provisions related to the Standing Liquidity Facility (SLF) have also been left intact.
NRB said it will use appropriate monetary instruments to keep market interest rates stable while ensuring the interbank rate remains close to the policy rate.
Although the central bank described the financial sector as broadly stable, it acknowledged growing concerns over rising non-performing loans and capital pressure in some banks and financial institutions. It said supervision of such institutions will be strengthened while macroprudential regulations will continue.
The monetary policy also gives high priority to financial sector reforms. Banks and financial institutions will be encouraged to improve branch management, accelerate digitalization, and reduce operating costs so that customers can benefit from greater efficiency.
NRB also plans to complete a study on the classification of banks and financial institutions before gradually introducing a revised regulatory framework.
Several reforms have been proposed in the lending sector. The policy seeks to eliminate unlimited liability arising from personal guarantees, ease restrictions on borrowers blacklisted due to bounced checks, address bad loans in sick industries, and introduce special measures to support financially stressed borrowers.
The loan-to-value ratio for large electric vehicles used in public transportation will also be relaxed to encourage investment in cleaner transport.
The central bank said it will simplify directives issued to banks and financial institutions by removing duplication. As a first step, it will review regulations related to lending, interest rates, and consumer protection. It also plans to simplify the unified circular governing foreign exchange transactions.
In addition, NRB announced a study on the feasibility of introducing peer-to-peer (P2P) lending based on individual credit scoring systems.
The central bank said the monetary policy will be implemented in coordination with the government's economic reforms, governance reforms, and budget measures.
The policy presents an optimistic outlook for the economy. While average inflation stood at 2.66 percent over the first ten months of the current fiscal year, year-on-year inflation reached 5.04 percent in mid-May, mainly due to higher food and petroleum prices.
NRB expects inflationary pressure to persist in the short term before easing from the fourth quarter of the next fiscal year.
The central bank also expressed confidence that Nepal's external sector will strengthen further. Although imports are expected to rise, growing remittance inflows, tourism earnings, and service exports are projected to keep both the current account and balance of payments in surplus, while foreign exchange reserves are expected to increase further.
Looking ahead, NRB said it will review its monetary policy if inflation rises beyond expectations, if ample liquidity fails to translate into stronger private and public sector activity, or if broader macroeconomic stability comes under pressure.
It also said the interest rate corridor may be gradually narrowed when necessary, while macroprudential regulatory tools will remain unchanged except under extraordinary circumstances.
