Central bank H1 review: 8 new measures announced, interest rate corridor unchanged

KATHMANDU: The mid-year review of the monetary policy released by Nepal Rastra Bank has introduced eight new policy measures aimed at expanding credit to productive sectors, strengthening digital finance, and easing business financing conditions, while keeping core monetary instruments unchanged.

The central bank published the review in nine policy points, confirming that the interest rate corridor, bank rate, cash reserve ratio (CRR), and statutory liquidity ratio (SLR) will remain intact. The decision signals a cautious monetary stance focused on financial stability despite pressure from the private sector for broader easing.

Officials said the review attempts to strike a balance between maintaining macroeconomic stability and accelerating credit flow toward productive industries, infrastructure, and technology-led growth.

Priority Sector Lending Expanded

One of the most significant changes is the expansion of the sectoral lending framework. Until now, the policy primarily emphasized agriculture, energy, and small enterprises. The review now adds tourism, information technology, and export-oriented industries based on domestic raw materials to the priority list.

The central bank stated that minimum lending ratios required from banks in each of these sectors will be revised accordingly. This adjustment is expected to push more institutional credit into sectors capable of generating employment, foreign exchange earnings, and industrial output.

Banking experts say the inclusion of tourism and IT reflects a policy shift toward service-led growth and digital economic transformation.

Working Capital Loan Rules Made Flexible

The review also introduces a major revision to working capital loan guidelines, long criticized by businesses as rigid and impractical.

Banks will now be allowed to determine the duration of permanent working capital based on borrowers’ cash flow patterns and financial statements rather than fixed assumptions.

In another key change, the provision requiring borrowers to reduce outstanding working capital balances below 10 percent for at least seven consecutive days each year has been relaxed. The threshold will now be set at 30 percent, making compliance easier for firms with seasonal or volatile business cycles.

Economists believe this change could improve liquidity circulation in the market and reduce pressure on traders, manufacturers, and construction-related firms.

Relief for Businesses Displaced by Highway Expansion

In a targeted intervention, the central bank has allowed loan restructuring and rescheduling facilities until mid-July 2026 for enterprises displaced by expansion of the Mahendra Highway and Mid-Hill Highway.

Under the new rule, banks may restructure such loans by charging at least 10 percent interest. The measure is expected to protect affected small and medium enterprises from slipping into default while giving them time to relocate or rebuild operations.

Higher Ceiling for Forex Hedging Transactions

To strengthen foreign exchange risk management, the limit on non-deliverable forward (NDF) transactions conducted by banks and financial institutions will be raised from 25 percent to 30 percent of primary capital.

Bankers say the move will help firms exposed to foreign currency volatility better manage risks, particularly import-heavy industries and exporters dealing in multiple currencies.

Foreign Investment Push in Tech Infrastructure

The review places strong emphasis on technology-driven infrastructure. The central bank said foreign investment facilitation will be prioritized in projects such as data centers, cloud computing facilities, robotics labs, and artificial intelligence infrastructure.

Banks and financial institutions will also be encouraged to provide co-financing loans to such projects, signaling a policy push toward digital industrialization and technology ecosystem development.

Cheque Transactions to Be Gradually Reduced

The central bank has adopted a strategy to gradually reduce cheque-based transactions and further promote electronic payments.

Officials say the shift is intended to modernize the financial system, improve transaction traceability, reduce operational costs, and accelerate Nepal’s transition toward a digital economy.

More Practical Approach to Credit Blacklisting

The review also softens the approach to credit blacklisting.

Borrowers unable to repay loans immediately due to situational constraints will not be automatically placed on the blacklist. Additionally, borrowers already blacklisted may be temporarily removed for up to six months if they present valid reasons and begin repayment procedures.

The central bank says this approach aims to balance credit discipline with economic recovery needs, especially for businesses facing temporary cash flow shocks.

Financial Sector Strategy to Be Implemented

The review confirms that responsibilities assigned to the central bank under the newly approved Second Financial Sector Development Strategy (2025/26–2029/30) by the Government of Nepal will be implemented gradually.

Authorities expect that the monetary policy measures and subsequent reviews will help maintain price stability, external sector balance, and financial system resilience while supporting economic activity.