Nepal’s central bank sticks to cautiously flexible monetary policy, backs government’s 7 percent growth

Nepal's central bank has retained its "cautiously flexible" monetary policy for the fiscal year 2026-27, aiming to support the government's ambitious 7 percent economic growth target while keeping inflation around 5.5 percent. The central bank, Nepal Rastra Bank (NRB), announced the policy on Monday, emphasizing its commitment to ensuring adequate liquidity and prudent foreign exchange management. Governor Biswo Nath Poudel stated that the current foreign exchange reserve position is comfortable and the macroeconomic environment is favorable, justifying the continuation of the existing policy stance. Key measures include keeping policy rates unchanged, such as the policy rate, standing deposit facility rate, and bank rate, which remains at 5.75 percent. The NRB will also ease loan-to-value ratios for electric vehicles used in public transportation and raise the unsecured loan ceiling for microfinance borrowers to Rs1.5 million. Commercial lending will continue to prioritize productive sectors. The central bank acknowledged challenges such as rising non-performing loans and pressure on banks' capital buffers, pledging special programs to revive sick industries and resolve problematic loans. To improve liquidity management, commercial banks will be encouraged to invest in foreign government securities, and the NRB plans to introduce sterilized interventions. The policy also aims to reclassify banks based on size and business nature to facilitate specialized banking services.

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As the current foreign exchange reserve position remains comfortable and the overall macroeconomic environment is favourable, the cautiously flexible policy stance adopted so far has been continued.