Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB) has officially released its annual review report on the monetary policy for the fiscal year 2082/83. The report highlights a mixed economic landscape for Nepal, characterized by historically strong foreign exchange reserves and low inflation, alongside a sluggish growth in private sector credit due to weak domestic demand.
According to the central bank, the country managed to keep consumer inflation well under control. The average inflation for the first ten months of the fiscal year stood at a stable 2.66%, securely remaining within the bank’s targeted ceiling of 5.0%. By the month of Baisakh 2083, the year-on-year inflation rate hovered slightly above at 5.04%.
One of the most remarkable achievements of the year was the unprecedented surge in foreign exchange reserves. Against the original policy target of maintaining enough reserves to cover seven months of imports, Nepal’s financial system accumulated enough foreign currency to sustain a massive 19.2 months of imports of goods and services. This cushion was largely driven by a continuous inflow of external remittances.
However, the report also brings to light significant internal challenges. Despite an overall expansion in money supply by 15.2%, the actual credit extended to the private sector grew by only 6.5%, falling far short of the bank’s 12.0% projection.
NRB noted that a combination of factors—including a delayed monsoon, devastating floods in Ashoj, global geopolitical tensions affecting fuel prices, and low confidence among local businesses—dampened aggregate demand. This lack of domestic demand meant that while banks were flushed with cash, they struggled to find new borrowers, resulting in severe excess liquidity across the financial sector.
To counter this slowdown and stimulate the economy, the central bank adopted a flexibly cautious approach. It gradually lowered key interest rates, bringing the policy rate down to 4.25% during its first quarterly review. Additionally, several key retail financial limits were relaxed to encourage spending and investment.
The ceiling for private home loans was raised from Rs 2 crore to Rs 3 crore, and individual limits for loans against shares were boosted from Rs 15 crore to Rs 25 crore. Personal overdraft limits were also doubled to Rs 1 crore, while digital lending caps were updated to allow up to Rs 10 lakh for small enterprises.
Looking forward, the central bank emphasized the need to balance this excess liquidity while actively monitoring the rising non-performing loans within the banking system to safeguard long-term financial stability.
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