Banking Khabar / Nepal Rastra Bank (NRB) has begun preparations for the monetary policy of the upcoming fiscal year at a time when the country’s economy is facing multiple headwinds weak economic activity, declining private sector confidence, sluggish credit expansion, and idle liquidity within the banking system.
Despite sufficient liquidity in banks, investment activity has not picked up as expected, increasing pressure on the central bank to design a balanced and effective monetary policy.
Monetary policy is not merely a tool for managing interest rates; it is a key instrument for driving overall economic momentum. As a result, NRB now faces the complex challenge of balancing price stability, economic growth, private sector confidence, and financial system stability.
The central bank has intensified consultations, collecting suggestions from banks, financial institutions, the private sector, industrialists, economists, and other stakeholders for the upcoming policy framework.
High Expectations Amid Persistent Economic Challenges
The private sector has called for a more investment-friendly and business-supportive monetary policy. Business leaders argue that prolonged economic slowdown has hurt industrial activity and demand stronger measures to revive investment and production.
They have urged easier access to credit, particularly for manufacturing, small and medium enterprises (SMEs), agriculture, tourism, and job-creating sectors. While liquidity remains ample in the banking system, credit demand remains weak, prompting calls for stable and competitive interest rates.
Another key concern is the cost of borrowing. Businesses argue that high interest rates and financial costs have made operations difficult, and they expect the upcoming policy to address both credit availability and affordability.
Banks Seek Stability and Regulatory Balance
Banks and financial institutions have recommended that the monetary policy maintain a balance between stability and practicality.
The banking sector is particularly focused on credit expansion, regulatory flexibility, and risk management. Sluggish loan growth in recent years has affected profitability, investment capacity, and overall business momentum in the financial sector.
Banks have urged policies that encourage lending while ensuring financial stability. They also emphasize stronger support for productive sector lending, improved incentives for well-performing banks, and continued expansion of digital banking services.
Economists Call for Structural and Long-Term Focus
Economists, however, argue that the upcoming monetary policy should not be limited to short-term fixes.
According to them, Nepal’s main challenge is not liquidity shortage but weak investment demand. Even with sufficient funds in the banking system, businesses are not expanding investment, highlighting deeper structural issues in the economy.
Experts stress that monetary policy should go beyond interest rate adjustments and liquidity management. Instead, it should rebuild investor confidence, encourage productive sector lending, and discourage credit flow toward unproductive sectors.
Pressure from Multiple Sectors
The real estate and capital markets are also closely watching the upcoming policy.
Real estate stakeholders have been demanding a review of loan limits and risk-weighting provisions, citing prolonged stagnation in property transactions. Similarly, stock market investors are calling for easier margin lending, relaxed risk weights, and improved financial access.
However, economists caution against policies favoring any single sector and instead advocate for overall financial stability and balanced growth.
Key Challenges Ahead for the Central Bank
NRB faces three major challenges while formulating the new monetary policy:
First, maintaining price stability while supporting economic growth. Controlling inflation remains a core responsibility, but boosting economic activity is equally important.
Second, channeling idle liquidity into productive sectors. Although banks have sufficient lending capacity, demand for credit remains weak.
Third, ensuring financial stability while promoting credit expansion. The central bank must strike a balance between growth and rising risks such as non-performing loans.
Towards a Balanced and Responsive Policy
The upcoming monetary policy is expected to be flexible yet disciplined, with focus on competitive interest rates, improved business confidence, and stronger credit flow to productive sectors.
Priority areas are likely to include support for SMEs, agriculture, tourism, digital financial services, and new business ventures, alongside efforts to strengthen financial system safety.
NRB is also expected to signal clearly that the financial system is prepared to support economic recovery.
A Test of Balance for NRB
The upcoming monetary policy represents a major test for Nepal Rastra Bank. On one hand, it must stimulate economic growth; on the other, it must maintain price stability and safeguard financial health.
While the private sector demands easier credit and a more investment-friendly environment, banks seek regulatory balance, and economists push for structural reforms.
Ultimately, the success of the policy will not be measured only by interest rate adjustments, but by its ability to restore confidence, stimulate investment, and channel financial resources into productive sectors of the economy.
