NRB targets 7% economic growth, 5.5% inflation in new monetary policy

KATHMANDU: Nepal Rastra Bank (NRB) has unveiled its Monetary Policy for fiscal year 2026/27 (FY 2083/84 BS), introducing 18 major policy measures aimed at maintaining macroeconomic stability, supporting private sector growth, strengthening the financial system, and achieving the government’s ambitious economic targets.

The central bank has set a target of keeping inflation at around 5.5%, maintaining foreign exchange reserves sufficient to finance at least seven months of goods and services imports, and ensuring adequate monetary liquidity and foreign exchange management to support the government’s 7% economic growth target.

The policy largely maintains the existing monetary policy stance, keeping key interest rates and liquidity requirements unchanged while introducing several structural reforms to improve banking efficiency, financial stability, and regulatory governance.

NRB said inflationary pressure caused by external factors is expected to ease gradually in the coming months as foreign exchange reserves remain comfortable and the country’s overall macroeconomic outlook continues to improve. It stated that the central bank will continue its “cautiously flexible” monetary policy approach to maintain a low-cost economy and boost private sector confidence.

As part of its monetary framework, the central bank has retained the fixed exchange rate regime between the Nepali rupee and the Indian rupee as its intermediate monetary policy target. It will continue using open market operations to keep the weighted average interbank interest rate close to the policy rate, deploying different liquidity management instruments depending on market conditions.

Key Policy Measures

Among the most notable announcements, NRB has kept the policy rate, bank rate, standing deposit facility rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and Standing Liquidity Facility (SLF) unchanged, signaling policy continuity despite global uncertainties.

To improve liquidity management, the central bank will encourage commercial banks to invest in foreign government securities and introduce sterilized intervention at the time of foreign currency purchases to better manage excess liquidity.

On financial stability, NRB said it will continue implementing macroprudential regulatory tools whenever systemic risks emerge, acknowledging that monetary policy alone is insufficient to address financial vulnerabilities.

The monetary policy also prioritizes financial sector reform, aiming to reduce banking costs through branch optimization and digital transformation. NRB said lower operating costs should ultimately benefit customers through improved service quality and reduced financial costs.

The central bank will complete its ongoing review of the classification framework for banks, financial institutions, and non-bank financial institutions, allowing each category to operate within clearly defined regulatory mandates.

Major Banking Reforms

One of the policy’s most significant reforms involves changes to the credit system. NRB plans to introduce special regulatory provisions to:

• Eliminate unlimited liability arising from personal guarantees for loans.
• Ease banking access for borrowers blacklisted due to dishonoured cheques.
• Facilitate the resolution of non-performing loans in distressed industries.
• Support the revival of stressed loans.
• Determine share-backed lending limits based on the financial strength of institutions.
• Relax loan-to-value (LTV) ratios for large electric vehicles used in public transportation.

The central bank will also simplify banking regulations by removing overlapping provisions and rewriting directives related to lending, interest rates, and consumer protection to make compliance easier for financial institutions.

In the foreign exchange sector, NRB plans to simplify its unified circular governing institutions engaged in foreign exchange transactions, reducing regulatory complexity.

Digital Finance and Future Direction

Recognizing the growing role of digital finance, NRB has announced that it will study the feasibility of introducing Peer-to-Peer (P2P) lending based on individual credit scoring systems.

The central bank also pledged to coordinate with relevant government agencies to implement monetary policy-related commitments outlined in the government’s governance reform agenda, 100-point action plan, and annual budget.

Looking ahead, NRB said it expects inflationary pressures to ease further over the coming months and remain within its projected range during the fiscal year.

However, the central bank warned that if inflation rises significantly, if abundant liquidity fails to support public and private sector activity, or if macroeconomic stability comes under pressure, it will review its monetary policy stance and may gradually narrow the interest rate corridor.

Finally, NRB said it will avoid making changes to its macroprudential regulatory tools except under exceptional circumstances, arguing that policy consistency will strengthen market confidence, improve predictability, and provide greater certainty for businesses and investors.