Monetary Policy of 2079/80 in Nepal: Things You Must Know

Monetary Policy of 2079/80 in Nepal: Things You Must Know
Policy you must know about even if you don't care.

Monetary policy! sounds like a boring topic and it is!!!

But it directly affects the money that you have in your pocket. So it does not hurt to know more about the monetary policy, especially Nepal’s monetary policy.

Nepal’s monetary policy is going to be issued and implemented this week. This will affect our entire year’s budget.

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So let’s learn about this policy.

What is Monetary Policy?

Monetary policy is a tool used by the central bank of a country to regulate the flow of money in the country. In other words through this policy central bank decides how much money should be in the market and how much money should be outside.

Listening to these things sounds like a simple thing believe me it’s not!! Monetary policy helps to keep a check on inflation, savings and borrowing rates, and most important all availability of money in the market.

A country’s economic future for a year is determined by the monetary policy which to me already sounds serious enough!!

Monetary Policy In Nepal

Nepal Rastra Bank the central bank of Nepal started formulating monetary policy started formulating only in 1996 despite the bank’s long history. The Nepal Rastra Bank Act 2058 established a clear legal and organizational framework to formulate and implement it according to the economic situation of the country.

Every year NRB (Nepal Rastra Bank) issues and implements the policy at the first week of Shrawan which is the start of the Nepalese fiscal year.

How Is Monetary Policy Prepared in Nepal?

Based on the guidelines established by NRB Act 2058 the monetary policy is formulated and implemented by the central bank independent of the Ministry of Finance. But it does take the programs mentioned in the budget under consideration. It must be in accordance with the budget otherwise government’s plan goes down the drain.

Monetary Policy of 2079/80 in Nepal: Things You Must Know
Monetary Policy Formulation Method(Image Source:

This clearly illustrates how the monetary policy is formulated in Nepal according to the guidelines.

Effects of Monetary Policy:

The effects of monetary policy are felt in almost every area and sector of the economy. Its effect is even felt in your family budget, your pocket money, and even the vegetables that you buy from the market.

The primary effects of monetary policy are:

  1. Inflation ( Rates of daily used items)
  2. Saving and Borrowing rates (interest that you get on your bank deposit and interest that you pay on loans)
  3. Day-to-day working of big corporations and banks.
  4. Rate of new investments
  5. Foreign Direct Investments
  6. Remittance
  7. Foreign currency reserves (Deposit of currencies like dollars, pound, euro, etc.)
  8. Import and exports

With these many things some of which directly affect your spending for yourself and your family. So shouldn’t you know about it eh!!

Monetary policy of the Fiscal year 2079/80:

1. Current Financial Situation of Nepal

Our country is about to face serious economic setbacks if we don’t do anything soon about it. Our country is facing a severe liquidity crisis, low foreign currency reserves, high trade deficit, high current account deficit, high inflation, etc. which are big no-no’s for the economy of any country. It is one of the baby steps taken by the government toward solving the problem that is currently hounding our economy like a rabid dog.

Previously for the past two years, NRB has brought the expansionary monetary policy to benefit the private sector which had suffered during the COVID. Responsible parties are expecting the same monetary policy this year but alas! NRB is not in the mood!!

Monetary Policy of 2079/80 in Nepal: Things You Must Know
Nepal Rastra Bank ( Image Source:

2. What is coming?

Due to low foreign currency reserves, high inflation, and liquidity crisis oops!! the trifecta of a troubled economy is in place. So NRB has to take drastic steps as well. Taking the reference of foreign central banks and at the suggestion of the International Monetary Fund(IMF) Nepal Rastra bank is preparing to bring contractionary monetary policy this fiscal year of 2079/80.

NRB is preparing to raise the interest rate for the loan that Banks and Financial institutions (BFI) currently are getting from the NRB as a relief package in general. NRB is also planning to increase the rate of Cash reserve ratio to 5% instead of the current 3% which is the lowest in the decade.

Upcoming monetary policy is going to pay attention to the remittance sector as well. Remittance means the money sent from overseas by the Nepalese workers working over there. majority of remittance coming to Nepal is coming through nonbanking channels which have led to the belief that the remittance is decreasing and there is a crunch of liquid cash available in the bank which has directly affected the bank in their loan-giving process. This has led to the halting of many developmental projects due to cash shortage again oops!!

This monetary policy is going to cut back on the facility given to BFI’s going for merger and acquisition process along with a policy to increase the foreign currency reserves of the NRB itself.

What to Expect from this Monetary Policy?

Well! This is a very good question asked by the businessman, financiers, economists, bankers, bureaucrats, and the general public itself. Everybody is facing hardship because of this economic condition. Everybody is afraid that we are going to be bankrupt or the country is going to be the next Sri Lanka. This monetary policy should address these issues because a single malicious rumor can set off a panic which can lead us to a downward spiral.


Monetary Policy of 2079/80 in Nepal: Things You Must Know
A run on a Bank of East Asia branch in Hong Kong, caused by “malicious rumors” in 2008

Philosophers have said that “People are affected most by the things that they do not know about the most”. This saying can be used for monetary policy as well. This policy affects the daily life of people, so they should be aware of it.

As said before Nepal government and NRB should also be careful regarding this because they cannot make mistakes regarding this because they have the responsibility of rescuing the country’s economy along with the reduction spending people in their daily life while increasing their income. Otherwise, the days of Sri Lankan bankruptcy and panic are not far behind.

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