Nepal’s Economic Compass: Navigating Growth and Stability with New Monetary Policy

Last updated: 13 Jul 2025

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On July 11, 2025 The Nepal Rastra Bank (NRB) has unveiled a new monetary policy for F/Y 2082/83 (2025/26) charting a course for Nepal’s economic future with a blend of ambitious growth targets and pragmatic regulatory adjustments. This policy aims to foster a stable and supportive environment for businesses and individuals alike, signaling a strategic shift towards easing monetary conditions.

Key Projections and an Accommodative Stance

At the heart of the new policy are several crucial projections:

  • Inflation: Maintain inflation within 5.0%.
  • Foreign Exchange Reserves: Ensure reserves cover at least seven months of goods and services imports.
  • Economic Growth: Support the government’s budget objective of achieving 6.0% economic growth.
  • Broad Money Supply Growth: Projected at 13.0%.
  • Private Sector Credit Growth: Projected at 12.0%.

To achieve these, the NRB has adopted a more accommodative monetary policy stance. This is evident in the reduction of key policy rates:

  • Policy Rate: Lowered from 5.0% to 4.5%
  • Bank Rate: Reduced from 6.5% to 6.0%
  • Deposit Collection Rate: Decreased from 3.0% to 2.75%

These reductions are expected to:

  • Reduce the cost of private sector capital formation.
  • Lower the cost of the government’s internal debt mobilization.
  • Support economic growth and stimulate aggregate demand.

Boosting Key Sectors and Enhancing Financial Stability.

Several measures target specific sectors and aim to strengthen the overall financial system:

  • Private Residential House Construction: The loan limit for private residential house construction or purchase has been significantly increased from NPR 20 million to NPR 30 million. The Loan-to-Value (LTV) ratio for first-time buyers can be maintained at a maximum of 80%, while for subsequent purchases, it can be up to 70%. This move is expected to invigorate the housing sector.
  • Capital Market Support: The maximum margin loan limit for a single client(Under SOL) against shares has been substantially increased from Rs. 15 crore to Rs. 25 crore. This directly enhances the capacity of individual investors to participate in the stock market.

Financial Sector Review and Reform

  • The existing loan classification and loan loss provisioning system will be reviewed.
  • The arrangement regarding the capitalization of interest on loans extended to the energy production sector will be reviewed/re-evaluated, providing potential relief to this crucial sector.
  • An Asset Quality Review (AQR) will be conducted for commercial banks to improve asset quality.
  • Regulatory arrangements concerning loan-deposit ratios will be re-evaluated after the effective implementation of international best practices such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to minimize liquidity risk and maintain stability for banks and financial institutions. With these CD Ratio Might Be replaced.
  • Arrangements for rescheduling and restructuring of loans will be made specifically for firms involved in land development and building construction, registered with and approved by the Nepal Government and currently operational.
  • Provisions will be made for banks and financial institutions to invest in debentures issued by institutions established to raise financial resources for investment in the infrastructure sector specified by the Government of Nepal.

Strengthening Financial Institutions

  • The limit for ‘C’ class finance companies to mobilize deposits up to 15 times their primary capital will be removed, acknowledging their adherence to regulatory standards.
  • For two years, regulatory reserves generated from non-banking assets acquired by banks and financial institutions can be counted as supplementary capital (Tier 2 Capital), offering a temporary capital boost.
  • The NRB will implement arrangements to allow BFIs to increase their capital as per necessity, subject to central bank approval, providing flexibility with oversight.
  • The NRB plans to address distressed assets of BFIs by preparing and submitting a draft of the necessary Act and regulations for the establishment of an Asset Management Company (AMC) to the Nepal Government.
  • The existing policy regarding the distribution of dividends (both cash and bonus shares) exceeding 15% annually by microfinance financial institutions will be re-evaluated (or revised).

Modernizing Payments and Facilitating Foreign Engagement

The policy also looks to modernize the financial landscape and ease foreign investment:

  • Establishment of NEO Bank: Legal and procedural arrangements will be advanced for the establishment of ‘NEO Bank’ to expand financial access, as mentioned in the government’s budget statement for FY 2082/083 (2025/26).
  • Branch Expansion Policy Review: In light of a strengthening electronic payment system, the existing branch expansion policy of banks and financial institutions will be reviewed.
  • Foreign Exchange Risk Management: Arrangements will be made to facilitate foreign investment by enabling commercial banks to manage foreign exchange risk.
  • Amendment of Foreign Investment and Loan Management Bylaws: The ‘Nepal Rastra Bank Foreign Investment and Foreign Loan Management Bylaws, 2078’ will be amended to improve the economic and business environment and facilitate investment.
  • Facilitating Repatriation of Funds: The policy will facilitate the repatriation of principal, interest, and dividends for foreign investors, foreign-invested industries/companies, and foreign companies’ branches, contact offices, or permanent establishments operating in Nepal.
  • Increasing Non-Deliverable Forwards (NDFs) Limit: The limit for non-deliverable forwards (NDFs) that banks and financial institutions can engage in will be increased from 20 percent to 25 percent of their primary capital. This will increase the foreign Investment by BFIs.
  • Increasing Foreign Currency Facility for Nepali Travelers: The foreign currency facility for Nepali citizens traveling to countries other than India will be increased from USD 2,500 to USD 3,000 per person per trip

This comprehensive monetary policy reflects NRB’s commitment to steering Nepal towards sustainable economic growth while ensuring financial stability and a more investor-friendly environment.

Link to the monetary Policy: https://www.nrb.org.np/contents/uploads/2025/07/Monetary_Policy_2082-083.pdf

Author: https://x.com/Mukunda_Chettri (Mukunda Chettri)