KATHMANDU: Nepal Rastra Bank has introduced several policy tweaks to lift sluggish credit growth.

In its first-quarter review of the Monetary Policy for Fiscal Year 2025/26 released on Monday, the central bank adopted a mildly supportive stance.

The policy changes come as credit expansion over the first quarter has remained far below the government’s target of expanding credit by 12% in the current fiscal year.

The policy rate has been cut to 4.25% from 4.50%, while the Standing Liquidity Facility rate has been lowered to 5.75% from 6%.

The central bank has kept the Deposit Facility Rate at 2.75%. The Cash Reserve Ratio and Statutory Liquidity Ratio have also been kept unchanged.

One notable change is the removal of the rule that required institutional fixed deposits to carry interest rates at least one percentage point below individual fixed deposit rates. This will enable institutional depositors to receive the same rates as individual savers. The central bank expects this will help banks raise long-term funds at a lower cost.

Similarly, the personal overdraft limit has been doubled from Rs 5 million to Rs 10 million. This is expected to encourage borrowing and support economic activity.

In the microfinance sector, the monetary policy review has increased the ceiling on secured loans per borrower from Rs 700,000 to Rs 1.5 million. The central bank has also allowed microfinance institutions to restructure or reschedule existing loans to ease repayment strain.

For businesses hit by floods and landslides in Ilam and other affected districts, the central bank has allowed banks and financial institutions to reschedule or restructure loans once, provided they recover at least 10% of the accrued interest.