NRB cuts bank rate to 5.75 pc, policy rate to 4.25 pc in Q1 monetary policy review

KATHMANDU: Nepal Rastra Bank (NRB) has maintained a cautiously flexible monetary stance in its first quarterly review of monetary policy for fiscal year 2025/26. It has announced a package of interest‑rate cuts and regulatory relaxations to support economic recovery after recent Gen‑Z protests and natural disasters.

The central bank has cut the bank rate (upper bound) from 6.0% to 5.75% and the policy rate from 4.5% to 4.25%, while keeping the deposit collection rate (lower bound) unchanged at 2.75%. The measures are intended to reduce the cost of funds, ease liquidity and encourage lending.

NRB has raised credit limits for households and microfinance borrowers. The personal overdraft limit is doubled from Rs 5 million to Rs 10 million, and the cap on collateral‑based loans from microfinance institutions is increased from Rs 700,000 to Rs 1.5 million. The central bank has also removed the rule that required institutional fixed deposit rates to be at least 1% lower than individual fixed deposits.

Targeted relief measures allow banks to restructure loans for businesses in flood‑affected districts by charging only 10% interest on restructured loans, provided restructuring is done once. Borrowers affected by the Gen‑Z protests may restructure loans until January 2026, and a payroll protection scheme permits loans at base rate + 0.5% to cover staff salaries.

NRB’s macroeconomic snapshot for the first quarter shows strong external stability but weak domestic demand. Consumer inflation falls to 1.47% from 4.82% a year earlier, mainly due to negative food inflation. Remittance inflows rise 35.4% to Rs 553.31 billion, and foreign exchange reserves cover 16.4 months of goods and services imports. Exports surge 89.6% while imports increase 19.8%. Private sector credit grows by only 1.5%, well below the 12% annual target, and non‑performing loans rise to 5.26% from 4.42% a year ago.

The review also introduces sectoral and governance reforms. Banks operating in metropolitan areas may rationalise branches to improve efficiency amid rising digital transactions. The central bank will introduce an anti‑bribery and corruption policy to strengthen governance and accountability in financial institutions.

In the share market, the single obligor limit on share loans is removed, and the holding period for banks’ share investments is reduced to six months.

NRB said that, despite robust external buffers, the domestic economy needs support to offset the effects of protests and natural disasters. The policy adjustments are designed to revive credit growth and help the economy move towards the central bank’s 4.0% inflation target.