Nepal Rastra Bank (NRB): Profile, Governor & Monetary Policy Toolkit

Nepal Rastra Bank (NRB) is the central bank of Nepal, headquartered at the Central Office in Baluwatar, Kathmandu. As the monetary authority, it is the single most important public institution in the country's financial system: it issues the Nepalese rupee, sets monetary policy, manages foreign-exchange reserves, and licenses and supervises every bank and financial institution (BFI) in the country. It is not a commercial lender to the public; instead it is the "bank of banks" and the banker and economic adviser to the Government of Nepal.

NRB regulates a tiered banking system that it classifies into four categories: Class "A" commercial banks, Class "B" development banks, Class "C" finance companies and Class "D" microfinance institutions. Alongside these it also oversees infrastructure development banks, payment service providers and other financial entities. This supervisory reach means NRB's decisions on interest rates and reserve rules ripple through to the deposit and loan rates that ordinary Nepali households and businesses actually pay.

Because Nepal operates a pegged exchange rate with the Indian rupee (INR 1 = NPR 1.60), NRB's room to run an independent interest-rate policy is constrained: capital and goods flow relatively freely across the open border, so Nepali rates cannot drift too far from Indian conditions. Managing this peg, along with domestic price stability and financial-sector soundness, defines the core of NRB's mandate.

NRB was established on 26 April 1956 AD, corresponding to 14 Baisakh 2013 BS, under the Nepal Rastra Bank Act, 1955 (2012 BS). Its creation ended the era in which Indian currency circulated widely inside Nepal and gave the country its own central monetary authority to develop a still-embryonic domestic financial sector and to promote wider use of the Nepalese rupee.

The legal foundation of the bank was completely modernised by the Nepal Rastra Bank Act, 2058 (2002 AD), which repealed and replaced the 1955 statute. This is the law under which NRB operates today. It recast the bank's objectives, strengthened its autonomy in formulating monetary and exchange-rate policy, and clarified its powers to regulate, inspect and supervise BFIs. The Act has since been amended, including a first amendment in 2063 BS (2006 AD).

Under Section 4 of the 2002 Act, NRB's stated objectives are threefold: to formulate monetary and foreign-exchange policies that maintain price and balance-of-payments stability for sustainable development; to increase access to financial services and public confidence in the banking system by keeping the financial sector stable; and to develop a secure, healthy and efficient payment system. These objectives frame everything the bank does, from setting the policy rate to writing prudential directives for banks.

NRB's functions flow directly from its legal objectives and cover the full range of central-banking responsibilities. It is the sole issuer of banknotes and coins in Nepal, and it is the custodian and manager of the country's official foreign-exchange reserves, a role that is especially sensitive given the fixed peg to the Indian rupee. As the government's banker and fiscal agent, it also manages public debt and advises the state on economic and financial matters.

Its supervisory function is arguably the most visible to the public. NRB grants and revokes the licences of BFIs, sets capital-adequacy and provisioning standards in line with Basel principles, conducts on-site and off-site inspections, and issues the Unified Directives that commercial banks and other institutions must follow. When a bank runs into trouble, NRB can intervene, force mergers, or place the institution under management to protect depositors and financial stability.

Finally, NRB operates and oversees the national payment and settlement infrastructure, including the Real-Time Gross Settlement (RTGS) system, and it has been a driving force behind Nepal's rapid shift toward digital payments, QR-based transactions and interoperable retail systems.

The current governor of Nepal Rastra Bank is Dr. Biswo Nath Poudel, who was sworn in on 21 May 2025 as the 18th governor of the bank. He took the oath of office and secrecy before the Chief Justice of Nepal following his appointment by the Government of Nepal. An economist by training, Dr. Poudel holds a PhD in Agricultural and Resource Economics from the University of California, Berkeley, and has held academic and public-policy positions in Nepal.

The governor is the chief executive and public face of NRB. Under the 2002 Act the governor is appointed for a five-year term and can be reappointed for one further term, an arrangement designed to give the office a degree of independence from the political cycle. The governor chairs the bank's Board of Directors and leads the reading of the annual monetary policy statement.

The governor is supported by two deputy governors and the Board. As of 2025 the deputy governor is Mr. Kiran Pandit. Because monetary-policy announcements and interest-rate decisions carry the governor's signature, the name of the sitting governor is one of the most frequently searched facts about the institution.

The centrepiece of NRB's day-to-day monetary operations is the Interest Rate Corridor (IRC), a band within which short-term interbank interest rates are kept. The corridor has three key rates. The bank rate (also operated through the Standing Liquidity Facility, SLF) is the ceiling: it is the rate at which NRB lends emergency overnight liquidity to banks, so market rates should not rise above it. The deposit-collection rate, operated through the Standing Deposit Facility (SDF), is the floor: it is the rate NRB pays banks to park surplus funds overnight, so market rates should not fall below it.

In the middle sits the policy repo rate, the operating target of monetary policy. NRB conducts repo and reverse-repo (deposit-collection) auctions to keep the weighted-average interbank rate close to this policy rate. Raising the corridor tightens monetary conditions and tends to push deposit and lending rates up; lowering it loosens conditions and eases borrowing costs. This corridor framework replaced the older, cruder liquidity-management tools and gives NRB a more predictable way to transmit its policy stance to the market.

For the fiscal year 2082/83 (2025/26), NRB began the year with the bank rate at 6.0%, the policy rate at 4.5% and the deposit-collection floor at 2.75%. In its first-quarter/mid-term review published around late 2025, the bank narrowed the corridor by cutting the SLF/bank rate to 5.75% and the policy repo rate to 4.25%, while keeping the deposit-collection floor at 2.75%. These corridor rates are reviewed periodically, so readers should always confirm the latest figures against NRB's current monetary-policy statement.

Beyond the corridor, NRB uses balance-sheet requirements to manage liquidity and protect depositors. The Cash Reserve Ratio (CRR) is the share of total deposits that a bank must hold as cash reserves in its account at NRB; it has been set at 4% of deposits. The Statutory Liquidity Ratio (SLR) is the share of deposits a bank must hold in prescribed liquid assets such as cash, gold and government securities. The SLR is set at 12% for commercial banks and 10% for development banks and finance companies. Both the CRR and SLR were kept unchanged in the FY2082/83 monetary policy.

A tool that is distinctive to Nepal is the cap on the interest-rate spread of BFIs. The spread is the gap between the average interest a bank earns on loans and the average interest it pays on deposits, and it is a rough measure of how much the bank charges for intermediation. To keep lending affordable and to discipline profitability, NRB caps this spread at 4.0% for commercial banks and 4.6% for development banks and finance companies. Banks that breach the ceiling face regulatory action, and NRB publishes methodology for how the spread must be calculated.

Together, the CRR, the SLR and the spread cap complement the interest-rate corridor. The corridor sets the price of short-term money, the reserve ratios govern how much a bank can lend from a given deposit base, and the spread cap limits how wide a margin banks can charge borrowers. This layered toolkit is how NRB pursues price stability, protects the peg and keeps credit flowing to the productive economy.

Each fiscal year, usually in July after the national budget, NRB publishes its Monetary Policy statement for the year. The statement sets out the bank's macroeconomic outlook, its inflation and credit-growth targets, the settings of the corridor rates and reserve ratios, and any new directives for BFIs. It is closely watched by the stock market, banks, businesses and Loksewa (public-service) examinees alike. NRB then issues a mid-term (or quarterly) review that can adjust the corridor rates in response to changing liquidity and inflation conditions.

For FY2082/83 (2025/26), NRB framed policy around supporting the government's growth ambitions while containing inflation, with an inflation target of around 5% and measures to ease credit and support borrowers affected by natural disasters. Because Nepal imports a large share of its goods from India and holds a currency peg, the bank has to balance stimulating domestic activity against keeping foreign-exchange reserves and the balance of payments comfortable.

For students and investors, the practical takeaway is that NRB's specific numbers, the corridor rates, the CRR and SLR, and the spread cap, are policy settings that can and do change from one review to the next. The framework, however, is stable: an interest-rate corridor bounded by the bank rate and the deposit-collection rate, reserve requirements, and a spread cap, all deployed to keep prices and the financial system stable.