The Nepal Rastra Bank (NRB) has begun preparations for its monetary policy for the upcoming fiscal year 2025/26. The central bank on Monday sought input from stakeholders on the new policy. 

Then-Governor Maha Prasad Adhikari described his last monetary policy, for the current fiscal year 2023/24, as “cautiously flexible”. With Biswo Poudel now leading the central bank, there is growing curiosity about the direction of the upcoming policy. In a recent meeting with Finance Minister Bishnu Prasad Paudel, Governor Poudel said that the central bank would support the implementation of fiscal policy through monetary tools, while also strengthening its supervisory capacity to enhance the effectiveness of the financial sector. Finance Minister Paudel expressed confidence that the new governor would ensure better coordination between fiscal and monetary policies to address economic challenges.

Given Governor Poudel’s commitment to aligning monetary policy with fiscal objectives, the upcoming monetary policy is expected to support the priorities outlined in the 2025/26 budget. With the economy still under pressure, public attention is now focused on how monetary policy can help revive economic activity.

The new budget includes provisions for establishing an asset management company to address non-performing loans (NPLs) and implementing loan restructuring reforms. Although past budgets also made similar promises, they were not followed by concrete action. 

Banking expert Anal Raj Bhattarai said the monetary policy must prioritize setting up the asset management company to tackle the growing volume of NPLs in the banking sector. He added that rising NPLs across multiple sectors must be addressed through comprehensive policy reforms. “The policy may include detailed provisions on interest capitalization and extended timelines for interest payments,” Bhattarai said. He expects the upcoming monetary policy to focus on boosting liquidity and stimulating domestic demand.

“The Working Capital Loan Guidelines have made it difficult for businesses to operate, and non-performing loans are on the rise. The new policy is likely to address these challenges,” Bhattarai told ApEx. “Given the lack of momentum in the capital market, the policy could also introduce some easing measures.

Bhattarai also said the new monetary policy could introduce flexibility in the classification and provisioning of bad loans.

Currently, banks are required to make 100 percent provisions for NPLs within one year. Bhattarai proposed extending this timeline to two years, similar to India’s three-year model, to ease capital pressures and enable banks to issue new loans. Governor Poudel has been actively consulting stakeholders, indicating his intent to understand the challenges faced by businesses and the private sector.

Bhattarai expressed confidence in Poudel’s leadership, noting that previous governors, including Adhikari, introduced impactful and market-sensitive policies in their first year.

With Poudel now at the helm, Bhattarai anticipates a similarly pragmatic approach. Compared to the “cautiously flexible” policy of the current fiscal year, he expects the upcoming monetary policy to be flexible.