KATHMANDU: Nepal Rastra Bank (NRB) has said that while Nepal’s economy remains strong on the external front, sluggish domestic demand and slow credit expansion continue to pose challenges.
Releasing the annual review of the Monetary Policy for the fiscal year 2025/26, the central bank said consumer inflation remained under control during the review period.
The NRB had set a target of keeping inflation within 5 percent, while average inflation stood at 2.66 percent during the period.
The external sector showed a historically strong position, with foreign exchange reserves as of April sufficient to cover 19.2 months of imports of goods and services. This was significantly higher than the target of seven months.
However, despite adequate liquidity in the banking system, credit flow to the private sector remained below expectations.
The review stated that private sector credit growth was projected at 12 percent for fiscal year 2025/26, but actual growth stood at only 6.5 percent as of April.
The central bank attributed the slow credit expansion to weak domestic demand, sluggish construction activities and rising non-performing loans, which have affected banks’ investment capacity and private sector confidence.
During the review period, NRB reduced some policy rates and increased lending limits. The policy rate was lowered from 4.50 percent to 4.25 percent, while the limit for personal residential housing loans was increased from Rs 20 million to Rs 30 million.
Similarly, the single borrower limit for share-backed loans was increased from Rs 15 million to Rs 25 million.
The central bank also increased the limit for digital loans to Rs 1 million, raised the collateral-based lending limit of microfinance institutions from Rs 700,000 to Rs 1.5 million, and increased the personal overdraft loan limit from Rs 5 million to Rs 10 million.
Challenges ahead
The NRB identified a possible rise in fuel prices and disruptions in global supply chains due to the Israel-Iran conflict as major external risks.
Internally, the central bank highlighted declining agricultural production and the need to improve weak private sector confidence as key challenges.
The NRB said it is implementing a national strategy to help Nepal exit the Financial Action Task Force’s “grey list” and has introduced a fintech strategy to promote digital banking services.
The central bank said future policy measures would focus on maintaining economic stability while supporting sustainable growth and improving credit expansion.
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