NRB Reduces Domestic Debt Holdings by Rs. 53.8B: Shift in Fiscal Strategy

The Nepal Rastra Bank (NRB) has sharply reduced its domestic debt holdings by Rs. 53.8 billion between mid-July and mid-August 2025/26, signaling a significant shift in fiscal and monetary strategy. The central bank’s portfolio of government securities fell from Rs. 74.2 billion to just Rs. 12.0 billion, effectively minimizing its direct involvement in financing government expenditure.

This reduction is most visible in the treasury bills segment, where NRB’s holdings, which were Rs. 45.3 billion a year earlier, now stand at only Rs. 250 million. Similarly, its stake in development bonds fell to Rs. 8.8 billion, and in citizen saving bonds it remained flat at Rs. 3.0 billion. Economists interpret this as a deliberate policy move by NRB to let commercial banks and institutional investors dominate the domestic debt market, thereby reducing the risk of monetary financing of fiscal deficits.

By pulling back from direct debt ownership, NRB is signaling a stronger commitment to monetary discipline, ensuring that liquidity management remains market-driven rather than state-financed. However, this also means that the government must rely more heavily on commercial banks, development banks, and non-bank institutions to fund its borrowing requirements. The immediate effect has been a greater dominance of commercial banks, whose holdings now exceed Rs. 1.02 trillion.

Analysts argue that while this reduces inflationary risks from central bank financing, it could heighten concerns about crowding out private sector credit if banks continue channeling liquidity towards government securities.