NRB signals stable rates but flags external risks as Nepal nears new monetary policy

KATHMANDU: Nepal’s central bank has signaled a continuation of accommodative monetary policy, stable interest rates and comfortable liquidity conditions, even as it warned of growing external risks from global geopolitical tensions and rising petroleum prices — a message that is gaining renewed relevance ahead of Nepal’s upcoming monetary policy discussions and post-budget economic planning.

Although the Nepal Rastra Bank released its third-quarter monetary policy review, economists and bankers say the report is now being closely studied as a key indicator of what businesses, borrowers and financial markets can expect in the coming months.

The review suggests that the central bank is unlikely to abruptly tighten liquidity or significantly alter policy rates in the near term, despite growing uncertainty in the global economy. NRB said inflation remains under control, foreign exchange reserves are strong, and liquidity in the banking system remains adequate.

Interest Rates Likely to Stay Comfortable

One of the strongest takeaways for businesses and investors is the indication that borrowing costs may remain relatively stable, as banks continue to hold investable liquidity and inflation stays below the central bank’s annual target. NRB noted that the financial system continues to have sufficient liquidity despite sluggish aggregate demand.

The central bank reported that average inflation during the first nine months of FY 2082/83 stood at around 2.39 percent, remaining below its targeted ceiling.

Commercial bank deposit and lending rates have also remained relatively moderate, offering some relief to businesses still recovering from weak demand and slower economic activity.

Foreign Exchange Reserves Near Record Strength

The review shows Nepal’s external sector remains one of the economy’s strongest pillars, supported by robust remittance inflows and sufficient foreign exchange reserves.

According to NRB, Nepal’s foreign exchange reserves reached approximately Rs 34.94 trillion by the end of Chait, sufficient to finance imports for 18.4 months, far exceeding international adequacy benchmarks.

Remittance inflows surged by 39.1 percent during the first nine months of the fiscal year, providing continued support to household consumption and financial system liquidity.

Global Oil Shock Could Pressure Nepal

However, NRB has warned that Nepal remains vulnerable to global energy price shocks, particularly due to geopolitical instability in West Asia.

The central bank cautioned that disruptions in petroleum and industrial raw material supply chains could increase import costs and place upward pressure on inflation in Nepal. The review noted notable increases in fuel prices in recent months linked to international market developments.

This warning comes as businesses in Nepal increasingly monitor global crude oil movements, given their direct impact on transportation costs, inflation, industrial production and the country’s trade deficit.

Banking Sector Stability Remains Under Watch

While Nepal’s banking sector remains stable overall, NRB acknowledged that non-performing loans have risen moderately, though it expects gradual improvement alongside economic recovery. Capital adequacy indicators remain within regulatory thresholds, according to the review.

The message is particularly relevant as banks await possible regulatory responses after recent independent loan portfolio reviews of major commercial banks raised concerns over asset quality.

What This Means for Nepal’s Economy

For businesses, investors and borrowers, the latest review suggests Nepal is entering the next fiscal cycle with policy stability rather than abrupt tightening. Economists say the central bank appears focused on balancing economic growth support with financial stability, while remaining cautious about imported inflation risks.

With Nepal’s federal budget now approaching implementation and the next monetary policy cycle on the horizon, the review is increasingly being viewed not as an old document — but as a roadmap for how the central bank may navigate Nepal’s economy through the remainder of 2026.