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.
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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.
Nepal, a country of 29 million people landlocked between China and India, earlier this week extended a ban on luxury goods imports until the end of August, aiming to curb capital outflows following a decline in forex reserves.
In February, the central bank had raised the policy rate to 7 per cent from 5 per cent.
