NRB Set to Release Monetary Policy Review as Liquidity Surge, Weak Credit Demand and Jen-Z Movement Shape Economic Outlook

As Nepal’s financial system grapples with rising liquidity pressure and sluggish loan demand, the Nepal Rastra Bank (NRB) is preparing to unveil the first-quarter review of the current fiscal year’s monetary policy by Mangsir 15. With several economic indicators flashing concern, the forthcoming review is expected to address structural imbalances and restore market confidence.

In recent months, the banking sector has accumulated excess liquidity far beyond what the credit market can absorb. Although deposits have surged steadily, lending growth has not kept pace—with businesses holding back on expansion plans and consumer demand remaining subdued. Analysts suggest that this mismatch has now become one of the central bank’s biggest operational challenges. If unresolved, it risks distorting interest rate signals and weakening financial discipline across the system.

The impact of the Jen-Z protest movement in late Bhadra remains visible in banking records. Many borrowers failed to pay scheduled installments during the period of unrest, directly shrinking the income of financial institutions. Banks also report a noticeable rise in the number of clients slipping into the blacklist category due to delayed repayments. Beyond these financial indicators, the extensive damage to public and private property has also dented broader investor sentiment, contributing to volatility in both the stock and gold markets.

Against this backdrop, NRB faces a critical decision on interest rate adjustments. A rate hike could discourage borrowing further at a time when the economy needs momentum, while cutting rates may aggravate the already-high liquidity surplus. The central bank is also evaluating possible changes to the Cash Reserve Ratio (CRR)—a tool that determines how much of their deposits commercial banks must keep with NRB. Any alteration in CRR directly influences liquidity flow, credit pricing, and banks’ operational flexibility, making it a key subject of debate for the upcoming review.

Governor Dr. Bishwanath Paudel, meanwhile, has indicated that the central bank is preparing a set of simplified and targeted policy measures aimed at easing pressure on businesses. He has hinted at certain relief mechanisms for borrowers recently blacklisted due to extraordinary circumstances, along with more flexible rules for those seeking to invest in gold and the stock market. Officials say these steps are intended to revive investor confidence while supporting sectors that were hit hardest by the recent disruptions.

A significant component of the governor’s message centers on financial inclusion. Dr. Paudel has emphasized the need to expand banking access for underserved groups, increase awareness of available credit schemes, and channel liquidity into productive sectors rather than short-term speculative activities. Observers believe these themes will likely shape several of the provisions in the upcoming monetary policy review.

As the review date approaches, businesses, investors, and consumers alike are looking to the central bank for clarity. The expectation is that the upcoming policy adjustments will help stabilize the market, address the liquidity imbalance, and provide a more predictable environment for investment at a time when economic confidence remains fragile.