Nepal’s monetary and fiscal policies work together to maintain economic stability and promote growth, especially in response to inflation and budget deficits.
Monetary Policy (Managed by Nepal Rastra Bank - NRB)
Inflation Control: NRB sets an inflation target (around 6.5%) and adjusts interest rates to stabilize prices
Liquidity Management: The central bank uses tools like open market operations and reserve requirements to regulate money supply.
Foreign Exchange Reserves: Nepal maintains reserves to cover imports for 7 months, ensuring economic stability.
Interest Rate Adjustments: NRB lowers rates to encourage borrowing and investment when growth slows.
Fiscal Policy (Managed by the Government)
Budget Deficit Management: Nepal faces challenges with expenditures exceeding revenues, leading to fiscal deficits.
Public Investment: The government prioritizes infrastructure and social programs to stimulate growth.
Taxation & Revenue Collection: Import restrictions were lifted to boost tax collection and reduce the deficit.
How They Work Together?
Inflation Control: NRB adjusts interest rates while the government manages spending to prevent excessive inflation.
Economic Growth: Lower interest rates encourage investment, while government spending supports infrastructure and job creation.
Budget Deficit Management: The government increases revenue through taxation, while NRB ensures liquidity to support economic activity.
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