In accordance with the new Nepal Rastra Bank law, the central bank has loosened up monetary policy. This is an extension of its earlier decision to slash the compulsory cash holdings requirements for commercial banks. Effective mid-July, the NRB has allowed commercial banks to lower their Cash Reserve Ratios (CRR) by one percentage point, which it says would reduce the cost of funds and help lower lending rates without affecting the already low interest on deposits. The central bank's decision is expected to free up Rs 2 billion for investment. Last year the bank had taken similar policy measures to lower inter-bank lending rates and refinancing for loans for exports, as well as those dispensed by rural development banks. In late December last year the NRB lowered the refinancing rates further: from 4 to 2 percent for export loans, from 4.5 to 3 percent for loans to sick industries and from 5.5 to 4.5 percent for loans provided by rural development banks. The refinancing rate for all other types of lending was lowered from 6.5 to 5.5 percent. The NRB had also lowered the CRR in December:

The goal of the policy is to help support the government's plan of raising economic growth from 0.8 percent in the last fiscal year to about 4 percent, as announced in the budget. The bank has already drafted two laws governing banking, the Bank and Financial Institutions Act and the Anti-Money Laundering Act. The central bank and the government have also agreed on the overdrafts the government can obtain-they are to be restricted to under five percent of the revenue collected by the government in the previous year. The government would have to convert all overdraft amounts over the permissible levels into treasury bills.

The central bank has also made two other long overdue decisions: calling back its employees assigned to serve as directors in banks and financial institutions under its supervision, and begin divesting from rural development banks.