KATHMANDU: Nepal Rastra Bank unveiled its monetary policy for the fiscal year 2082/83 BS (2025/26 AD) on July 11, 2025. The policy aims to stimulate Nepal’s sluggish economy by adopting a flexible and expansionary approach.

Key measures include lowering interest rates, increasing loan limits for housing and share collateral, and easing credit flows to the private sector.

The policy also focuses on reviving the real estate market, improving liquidity, and supporting sectors affected by the COVID-19 slowdown, while maintaining macroeconomic stability.

This explainer delves into Nepal’s monetary policy for the upcoming fiscal year, unveiled on July 11, highlighting its key measures, objectives, and economic impacts.

What measures has Nepal Rastra Bank introduced to facilitate foreign investment and manage foreign exchange risk?

To attract more foreign investment, Nepal Rastra Bank (NRB) has introduced new provisions in the monetary policy that allow commercial banks to offer foreign exchange risk management services to investors.

This step is designed to reduce currency-related uncertainties that foreign investors face when investing in Nepal, thereby making the investment climate more predictable and secure.

In addition, NRB plans to amend the existing “Foreign Investment and Foreign Loan Management Regulations, 2021” to improve the economic and business environment.

The objective is to streamline regulatory processes and remove bottlenecks that often deter international investors.

The new policy also ensures smoother repatriation of returns for foreign investors. Those who have invested in Nepal—including foreign-invested industries, branch offices, liaison offices, and permanent establishments—will find it easier to repatriate principal amounts, interest, dividends, and other returns. This is expected to boost investor confidence.

NRB has also proposed reviewing the declaration threshold for foreign currency cash at customs points, aiming to simplify procedures. Similarly, rules requiring Nepali citizens or institutions to disclose foreign exchange holdings abroad will be eased.

Why has Nepal Rastra Bank proposed to classify remittance companies in the new monetary policy?

In the monetary policy for the fiscal year 2082/83 BS (2025/26 AD), Nepal Rastra Bank (NRB) Governor Dr. Biswo Nath Poudel has proposed a new framework to classify remittance companies based on their capital and transaction volume.

The remittance sector has grown significantly in recent years, becoming a cornerstone of Nepal’s economy due to the large inflow of money from migrant workers abroad.

With this growth, the NRB has recognized the need to differentiate companies based on their operational size and financial strength. The goal is to ensure better transparency, improve oversight, and reduce systemic risks.

Larger companies handling significant volumes of transactions will likely require stronger compliance measures, while smaller or emerging firms may be subject to different regulatory standards.

This classification will also help in developing more effective policies and promote healthy competition among companies. It is expected to enhance customer trust, promote the use of digital remittance channels, and support the adoption of modern technology.

A detailed study will be conducted before implementation to set benchmarks for required capital and transaction thresholds for each classification.

How is Nepal Rastra Bank’s new monetary policy expected to positively impact the stock market?

Nepal Rastra Bank’s (NRB) recently announced monetary policy is viewed as highly favorable for Nepal’s stock market. Historically, the stock market has expressed concerns about the central bank’s policies, but this time Governor Dr. Biswo Nath Poudel has addressed these issues head-on. Six key provisions in the policy are expected to boost market sentiment.

Firstly, the reduction of interest rates is a major driver. The policy rate has been lowered from 5% to 4.5%, the Standing Liquidity Facility (SLF) rate from 6.5% to 6%, and the Standing Deposit Facility (SDF) rate from 3% to 2.75%. These cuts make it easier for banks to lower lending rates, which is expected to start reflecting in market rates soon.

Secondly, the increase in the individual limit for share-backed loans from NPR 150 million to NPR 250 million will allow investors to borrow more against their shares, directly boosting investor confidence. Although few investors take large loans, this move has a strong psychological impact.

Other measures include relaxed restrictions on finance companies’ deposit mobilization and easing dividend distribution rules for microfinance institutions, all contributing to increased investor morale and potentially higher market activity.

Why has Nepal Rastra Bank increased the foreign exchange limit for travelers to countries other than India?

Nepal Rastra Bank (NRB) has increased the foreign exchange limit for Nepali citizens traveling to countries other than India. Previously, travelers were allowed to exchange up to USD 2,500 per visit. Under the new provision, this limit has been raised to USD 3,000.

This revision reflects growing travel-related expenses and inflation in international markets. As airfares, accommodation, and daily costs have risen globally, the earlier ceiling was becoming insufficient for travelers to cover basic expenses. The NRB’s move aims to address these practical concerns and reduce the need for informal currency exchanges abroad.

Additionally, raising the limit helps align Nepal’s foreign exchange policy with evolving global economic trends and supports legal, transparent channels for foreign currency transactions.

The increased allowance is expected to benefit students, tourists, business travelers, and those seeking medical treatment abroad.

However, the India-specific exchange limit remains unchanged, given Nepal’s open border with India and the unique monetary relationship between the two countries.

What changes has Nepal Rastra Bank proposed regarding microfinance institutions and priority sector lending?

Nepal Rastra Bank (NRB) has announced a review of existing policies that allow microfinance financial institutions to distribute more than 15% in annual dividends (cash or bonus shares).

This move indicates a shift toward more regulated profit-sharing in the microfinance sector, which has come under criticism for prioritizing profits over its social mission of financial inclusion.

Additionally, the policy introduces reforms to better categorize and facilitate loans issued to low-income groups. Loans of up to NPR 300,000 disbursed to youths going abroad for employment—whether collateral-based or not—will now be counted as loans to the deprived sector.

For women, this limit is increased to NPR 500,000. These changes recognize the economic vulnerabilities of migrant workers and women, offering them greater access to subsidized credit.

Furthermore, NRB will revise the criteria related to targeted lending in microfinance—specifically the definition of target groups, borrower eligibility, and credit utilization standards. The aim is to ensure that loans genuinely reach marginalized communities and are used productively.

The central bank will also review the broader framework for deprived sector and directed lending across all banks and financial institutions to enhance efficiency and impact.

Why is the inclusion of Bangladeshi and Sri Lankan currencies in the convertible currency list important?

The monetary policy has announced the decision to add Bangladeshi Taka and Sri Lankan Rupee to Nepal’s official list of convertible foreign currencies. This move reflects the growing economic and labor ties Nepal shares with these countries, particularly in trade and migration.

In recent years, Nepalese workers have increasingly been employed in countries like Bangladesh and Sri Lanka, and trade with these South Asian neighbors has also expanded.

By officially recognizing their currencies as convertible, NRB aims to facilitate smoother and more transparent foreign exchange operations.

Banks and financial institutions will now be able to legally trade these currencies, reducing dependence on informal currency exchanges. This enhances transparency, curbs illegal remittance channels, and strengthens Nepal’s foreign currency reserve management.

For travelers, businesses, students, and workers going to or dealing with these countries, this measure provides legal and streamlined currency conversion through authorized channels.

More broadly, this decision also signifies Nepal’s intention to integrate further into the South Asian financial ecosystem and to build a more flexible and inclusive foreign exchange framework.

What new measures has Nepal Rastra Bank introduced to promote businesses along the Postal Highway and Mid-Hill Highway?

Nepal Rastra Bank (NRB) has introduced targeted provisions to support and promote businesses located along the Postal Highway (Hulaki Rajmarga) and Mid-Hill Highway (Madhya Pahadi Lokmarga). Recognizing the economic potential of these expanding road networks, NRB aims to foster hospitality and industrial activities in surrounding areas to boost local economies.

Specifically, hotel and restaurant businesses near these highways that have obtained a food hygiene certification logo from the Department of Food Technology and Quality Control will be eligible for credit facilities under this scheme.

Similarly, businesses located in major marketplaces along these routes will also be promoted through more accessible financing.

Under the new arrangement, loans up to NPR 30 million disbursed to such businesses will be categorized as credit to small and medium enterprises (SMEs). This classification provides them with greater access to affordable and priority credit.

To further ease borrowing, NRB has capped the loan interest premium at only 2 percentage points above the base rate for such credits.

This policy aims to stimulate investment in tourism, food services, and local industries along national transport corridors, enhancing regional development and employment opportunities.

What changes has Nepal Rastra Bank made regarding the individual limit for share mortgage loans?

In the monetary policy for FY 2082/83 BS (2025/26 AD), Nepal Rastra Bank (NRB) has raised the individual loan limit for share-backed (share mortgage) loans. Previously, a person could obtain a maximum of NPR 150 million against the pledge of shares. With the latest revision announced by Governor Dr. Biswo Nath Poudel, this limit has now been increased to NPR 250 million.

This increase reflects the rising value and activity in Nepal’s capital market, and the need to provide investors with greater liquidity through regulated financial channels. It allows individual investors to access more capital by pledging their listed shares, which can then be used for other investments, business expansion, or personal financial needs.

The move is likely to encourage more participation in the stock market and potentially increase market liquidity. However, it also comes with heightened risks related to market volatility and overexposure to equity-backed credit.

NRB is expected to maintain strict monitoring and risk management frameworks to ensure that such loans do not destabilize the banking system or inflate stock prices artificially.

Overall, this policy provides more flexibility to individual investors while seeking a balance between credit expansion and financial stability.

How does the new monetary policy aim to stimulate Nepal’s sluggish economy?

Nepal Rastra Bank’s (NRB) monetary policy, the first under Governor Dr. Biswo Nath Poudel, is distinctly expansionary—designed to revive the country’s sluggish economy.

Despite positive macroeconomic indicators like stable inflation and balance of payments, overall market demand and credit uptake have remained weak. To address this, the new policy seeks to boost short-term liquidity and long-term investment through interest rate reductions, relaxed lending conditions, and targeted support to key sectors.

Key provisions include reducing the interest rate corridor (policy rate, SDF rate) to ease borrowing costs, aiming to lower lending rates across banks and financial institutions. This move is expected to stimulate private sector credit, revive the real estate and stock markets, and reduce the government’s internal borrowing costs.

The policy also increases individual limits for share-backed and housing loans, encouraging short-term capital circulation.

Additionally, NRB has introduced regulatory relief to banks struggling with capital adequacy, allowing certain reserves to count as supplementary capital. This addresses loan expansion limitations and NPL (non-performing loan) management challenges.

While the projected private sector credit growth (12%) appears cautious against the government’s 6% GDP growth target, the policy overall signals a pro-business, investment-friendly stance aimed at restoring momentum in Nepal’s economy.

What changes has NRB proposed regarding working capital loan guidelines in the new monetary policy?

Nepal Rastra Bank has announced that the existing working capital loan guidelines will be reviewed and revised further.

This follows the contentious implementation of working capital reforms introduced during the tenure of former Governor Maha Prasad Adhikari, which had faced criticism from various business sectors for being rigid and impractical.

In the new monetary policy for FY 2082/83 BS (2025/26 AD), NRB has taken a more flexible and business-friendly approach. The revised policy aims to tailor working capital loan provisions based on the specific nature of businesses, especially those in agriculture, small and cottage industries, education, health, media, and communication sectors.

These sectors often have longer cash flow cycles and seasonal income patterns, which require customized repayment and financing models.

Governor Poudel has also postponed the full implementation of the previous guidelines from the end of FY 2025 to the end of FY 2026, providing businesses with an additional year to adapt. This move signals NRB’s willingness to engage with stakeholders and ensure that credit policies do not restrict productive sectors of the economy.

Why is the new monetary policy considered expansionary, and how does it aim to revive the economy?

The monetary policy is broadly expansionary—intended to boost economic activities that have remained sluggish for several years. Although macroeconomic indicators such as the balance of payments and inflation appear stable, market demand and private sector credit growth remain weak. Recognizing this, the NRB has reduced the interest rate corridor to make credit cheaper, thereby encouraging borrowing and investment.

This includes bringing down the Standing Deposit Facility (SDF) rate, lowering deposit interest rates, and easing liquidity conditions. The policy aims to stimulate real estate and stock markets in the short term while also facilitating credit expansion in agriculture, SMEs, and industrial sectors.

Additionally, the policy enables banks to count certain regulatory reserves as supplementary capital, easing capital adequacy pressures and allowing room for more lending.

The overarching aim is to unlock liquidity stuck in the financial system and direct it into productive sectors to boost demand, create jobs, and drive growth.

However, the cautious 12% private-sector credit growth target raises questions about whether the 6% GDP growth goal is realistic.

What measures has NRB taken to stimulate the real estate and stock markets?

To provide short-term momentum to the economy, NRB has relaxed lending rules specifically targeting the real estate and stock markets. One key measure is the increase in the individual loan limit for share-backed (margin) loans—from NPR 150 million to NPR 250 million.

 Similarly, the limit for personal home loans has been raised to NPR 30 million. These changes are expected to enhance liquidity in the stock and real estate sectors and encourage investor and developer activity.

Additionally, NRB has capped the interest premium for loans up to NPR 30 million—especially in SME and real estate sectors—at only 2% above the base rate. This makes borrowing more affordable, especially for entrepreneurs, small businesses, and property buyers.

The monetary policy also seeks to bring more short-term capital into circulation to stimulate demand across industries. This reflects a strategic shift to create immediate economic activity through sectors like construction and equity investment, while medium- and long-term reforms continue in agriculture and manufacturing.

Experts caution that while this flexibility could lead to credit growth, it must be monitored to avoid NPLs (non-performing loans) rising from risky investments in volatile sectors like real estate and stocks.

How does the new policy address the capital adequacy pressure and bad loan management in banks?

One of the critical bottlenecks facing Nepal’s financial sector has been the capital adequacy pressure on banks, which has limited their ability to lend aggressively.

The new monetary policy addresses this by allowing banks and financial institutions to include regulatory reserves created from non-banking assets (held for up to two years) as part of their supplementary capital. This reduces pressure on capital adequacy ratios (CAR), freeing banks to expand credit.

NRB has also introduced reforms to support better NPL (non-performing loan) management. By improving provisioning flexibility and allowing smoother restructuring or write-offs in genuine cases, the central bank aims to clean up bank balance sheets. The overall strategy is to make banks healthier and more capable of supporting growth-oriented lending.

Bankers have welcomed the move, stating that it would ease the financial strain they face while dealing with sluggish loan recovery and rising bad loans.

The policy also signals that NRB is willing to provide regulatory support to ensure credit flows into productive sectors, even as the financial sector deals with past defaults.

What long-term reforms does NRB propose for sustainable growth beyond short-term stimulus?

While the monetary policy includes short-term stimulative measures like promoting real estate and stock lending, it also outlines a roadmap for long-term structural reform.

 These include revising the guidelines for working capital loans based on sector-specific repayment cycles, particularly in agriculture, cottage industries, media, health, and education sectors.

To support production and employment, the policy also encourages banks to lend more to sectors such as agriculture, SMEs, and digital businesses. It plans to revise digital lending guidelines and facilitate easier credit through electronic platforms.

Additionally, NRB has committed to reassessing regulatory tools like the Credit-to-Deposit Ratio (CDR) and shifting toward more internationally practiced indicators like the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The goal is to ensure the financial system’s long-term resilience.

The central bank also aims to strengthen its oversight of Systemically Important Banks (SIBs) through new regulatory frameworks, signaling a more robust risk management culture.

Thus, while the policy addresses immediate liquidity and demand concerns, it also lays the groundwork for a more resilient, inclusive, and production-focused financial system over the long run.

How has Nepal Rastra Bank adjusted its monetary policy rates to stimulate economic growth?

Nepal Rastra Bank (NRB) has adopted a carefully calibrated, flexible monetary policy aimed at revitalizing the sluggish Nepali economy. Considering both domestic and international economic landscapes, NRB’s new policy introduces several key interest rate reductions to enhance liquidity and encourage borrowing.

The policy reduces the Standing Liquidity Facility (SLF) rate, also known as the bank rate, by 0.5 percentage points to 6%.

Similarly, the policy rate has been lowered from 5% to 4.5%, while the Standing Deposit Facility (SDF) rate has been cut from 3% to 2.75%. These adjustments collectively lower the cost of borrowing for banks and financial institutions.

With easier liquidity conditions, NRB projects a 12% growth in loans flowing to the private sector in the upcoming fiscal year. This is part of a broader effort to fuel economic activity through increased credit availability.

Governor Dr. Biswo Nath Poudel highlighted that the policy’s flexibility is responsive to the easier interest rate environment and aims to facilitate a smooth transmission of monetary policy.

The government has set a 6% GDP growth target for the upcoming year, with inflation expected to remain within 5.5%. The NRB’s rate cuts and supportive monetary stance align with these macroeconomic goals by promoting investment, consumption, and overall economic expansion.

What changes have been made to finance companies and microfinance institutions under the new monetary policy?

The new monetary policy removes the previous cap on deposit mobilization by finance companies, which was limited to 15 times their primary capital. With this restriction lifted, finance companies can now collect more deposits and expand their business operations.

This move is expected to boost confidence among investors who hold shares in these companies, sending a positive signal to the market.

For microfinance institutions, the policy revisits the dividend distribution regulations. Currently, if microfinance institutions distribute dividends exceeding 15%, a large portion must be reserved for statutory and customer protection funds.

This rule has discouraged higher dividend payouts, leading to investor dissatisfaction. The new policy aims to raise this limit to 25% or even 30%, making microfinance shares more attractive to investors and enhancing their market appeal.

These adjustments are designed to stimulate the financial sector by providing more liquidity, encouraging business growth, and improving shareholder returns, thereby contributing positively to the broader financial market environment.

How does the monetary policy address challenges faced by banks regarding lending rates and branch expansion?

Nepal Rastra Bank recognizes that banks face challenges in adequately pricing loans due to unaccounted costs such as loan protection, bond issuance, and commissions.

The new monetary policy seeks to make the base rate calculation more realistic by incorporating these costs, potentially allowing banks to increase profitability while maintaining transparency.

Furthermore, the policy plans to review branch expansion guidelines. Banks have struggled with the approval process for closing inefficient branches where expenses outweigh benefits.

NRB aims to streamline this process, enabling banks to optimize their networks and reduce operational costs.

Additionally, non-performing loans (NPLs) remain a major issue. To tackle this, the policy proposes establishing asset management companies (AMCs) with relevant laws and regulations drafted for government approval. This framework aims to support banks in managing bad loans more effectively.

By addressing these operational and regulatory challenges, the policy fosters a healthier banking sector capable of expanding credit and supporting economic growth.

What measures have been introduced to improve credit flow and capital adequacy in banks?

The monetary policy sets a 12% growth target for loans flowing to the private sector, aiming to boost credit availability. It also increases the limit for personal home loans from NPR 20 million to NPR 30 million and allows banks to finance up to 70% of property value, encouraging more housing loans.

To support capital adequacy, NRB permits banks to raise additional capital with central bank approval, facilitating potential rights share issuances. This is expected to ease capital constraints faced by banks, enabling them to expand lending.

The policy also introduces revisions to credit-to-deposit ratios, liquidity coverage ratios (LCR), and net stable funding ratios (NSFR), aligning Nepal’s banking regulations with international best practices. These changes aim to strengthen the financial system’s resilience while allowing for sustainable credit growth.

Furthermore, banks are now allowed to invest up to 25% of their primary capital in non-deliverable forwards (NDFs), an increase from the previous 20%, providing banks with more avenues for profit and risk management.

Overall, these measures collectively enhance banks’ lending capacity and financial health, supporting Nepal’s economic expansion.

What is the current situation of the housing and real estate market in Nepal post-COVID-19?

Since the onset of the COVID-19 pandemic, Nepal’s housing and real estate market has experienced a significant slowdown. Many property owners who wish to sell their houses and land have been unable to find buyers, leading to a stagnation in transactions.

Even bank-auctioned properties—land and houses put up for sale to recover loans secured by collateral—are not attracting buyers, reflecting weak demand.

This prolonged slump has created difficulties for various stakeholders including property developers, banks, financial institutions, and cooperatives. The slowdown has also contributed to an increase in non-performing loans (NPLs) within the banking sector, as financial institutions struggle to recover dues tied to real estate collateral.

The sluggish market conditions have thus impacted both the real estate business and financial sector stability, creating a cycle that hinders economic recovery. To address this, Nepal Rastra Bank has introduced some relaxation measures in its recent monetary policy aimed at reviving housing market activity.

What new measures has Nepal Rastra Bank introduced to stimulate the housing market through monetary policy?

Nepal Rastra Bank (NRB) has implemented several accommodative measures in its latest monetary policy to support the sluggish housing sector. One of the key changes is raising the residential housing loan limit for individuals from NPR 200 million to NPR 300 million. This allows homebuyers seeking quality or modern housing to borrow more from banks and financial institutions.

Furthermore, for first-time homebuyers, the loan-to-value ratio has been increased from 70% to 80%, meaning banks can now finance up to 80% of the appraised property value. This is expected to encourage buyers by reducing their upfront payment burden.

For other housing purchases, the loan limit has also been raised—banks can now lend up to 70% of the property’s total value, up from the previous 50%. These measures collectively aim to boost housing demand by making loans more accessible and affordable in a low-interest environment.

What challenges remain in the housing sector despite the increased loan limits?

Despite the increased loan limits introduced by Nepal Rastra Bank, experts believe that these measures alone will not be sufficient to revive the housing market.

One major hurdle is the income verification criteria for home loan repayments. Currently, loan repayments can only constitute up to 70% of an individual’s taxable monthly salary. This excludes many potential borrowers whose income is either informal or not fully reflected in tax records—such as farmers and daily wage workers—making it difficult for them to qualify for housing loans.

Real estate businesses and financial experts have requested the government and NRB to simplify and relax these income assessment criteria to better accommodate informal sector workers and self-employed individuals.

Without such reforms, the housing sector’s recovery is likely to remain slow despite increased borrowing limits.