Nepal central bank raises policy interest rate to tame inflation

Nepal's central bank on Friday raised its benchmark policy rate at which it lends to commercial banks to 8.5 per cent from 7 per cent, as part of efforts to tame inflation which is running at a six-year high, its governor said.

"There is pressure on domestic prices," Nepal Rastra Bank Governor Maha Prasad Adhikari said, adding that pandemic-related monetary expansionary measures would be unwound gradually.

Annual retail inflation accelerated to 8.56 per cent for the month ending mid-June, pushed up by a spike in food and fuel costs amid pressure on the country's currency. The government had earlier set an inflation target of 7 per cent for the fiscal year, while aiming for annual economic growth of 8 per cent.

"The move is a way to bring down inflation," said Deependra Bahadur Kshetri, a former governor of the central bank after the rate rise, noting that it would impact consumer demand through a rise in overall bank interest rates.

A rise in crude oil and commodity prices since Russia invaded Ukraine in February has pushed up inflation globally, forcing many central banks to raise interest rates.