Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB) has reported improved aggregate demand, facilitating better management of non-performing loans (NPLs) in the financial sector, according to its third quarterly monetary policy review for fiscal year 2081/82, released on Sunday.
The central bank attributes this to enhanced capacity utilization in the economy, driven by increased credit flow due to low interest rates. However, excess liquidity in the financial system, with NPR 329 billion parked at NRB as of Sunday, has limited credit demand growth, tempering the bank’s optimistic claims.
In the first nine months of the fiscal year, banks and financial institutions disbursed an additional NPR 367.6 billion in loans, a significant rise compared to the previous year. This gradual credit expansion has supported economic activity, aiding NPL management. However, NRB’s assertion of robust economic recovery appears overstated, as the stock market has not mirrored the 37.8% surge in share-backed loans (NPR 34.02 billion). Experts suggest these loans are being diverted to non-stock sectors, diluting their impact on the Nepal Stock Exchange (NEPSE).
To manage liquidity, NRB raised the mandatory Cash Reserve Ratio (CRR) compliance threshold from 70% to 90%, requiring banks to hold 90% of the 4% CRR daily. This tightens banks’ ability to earn interest on excess liquidity, aiming to stabilize financial flows. The review also reduces the risk weight for share-backed loans from 125% to 100%, encouraging lending to stimulate the stock market.
NRB projects sustained balance of payments surplus, supported by robust remittance inflows due to increased Nepali migrant workers. However, rising imports amid economic recovery may strain foreign exchange reserves. Inflation remains below the target, and NRB emphasizes managing domestic demand to sustain economic and financial stability. The broad money supply grew by 11.6% in March 2025, slightly down from 12.4% the previous year, with the interbank rate steady at 3%.
Policy rates remain unchanged, with the repo rate at 5%, deposit collection rate at 3%, and bank rate at 6.5%. NRB plans to issue updated regulations under the Foreign Exchange (Regulation) Act, 2019, and Foreign Investment and Technology Transfer Act, 2075, to improve the investment climate. Additionally, revised procedures for cheque dishonor under the Banking Offence and Punishment Act, 2064, will be introduced.
Balancing internal and external economic indicators, NRB aims to maintain cautious monetary policy adjustments. While the review signals optimism, the central bank acknowledges that sustained demand management and targeted reforms are critical to ensuring long-term economic stability and growth.
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