5.3.1 Monetary Policy

Meaning: the central bank's management of money, credit and interest to steer the macroeconomy — the NRB's twice-yearly policy statement and its continuous operations. Types:expansionary (easy: cheap credit, more money — against recession) vs contractionary (tight: dear credit, money restrained — against inflation). Objectives:price stability (the modern primary); exchange-rate/BOP stability (for Nepal: the peg's defence — an objective with constitutional weight in a fixed-rate regime); financial stability (banks sound); and growth-support (the credit channel to investment — the developmental mandate the NRB Act carries). Tools (thestandard list with Nepal's operation):1. The policy rate / bank rate — the NRB's lending rate to banks (the rate's corridor: the standing deposit-and-lending facilities — the price of reserves);2. Cash Reserve Ratio (CRR) — the deposit share banks must park at the NRB (raising it freezes lendable funds — the quantity lever);3. Statutory Liquidity Ratio (SLR) — the liquid-asset holding requirement;4. Open-market operations — buying/selling securities (treasury bills and the repo instruments — injecting or absorbing liquidity: the fine-tuner);5. Selective/qualitative controls — margin requirements, sectoral credit ceilings, priority- sector directives (the development-bank toolkit's legacy);6. Moral suasion — the governor's phone call (the informal instrument every banking system swears by). The transmission mechanism (explain once): policy rate → interbank and deposit/lending rates → credit and investment/consumption → aggregate demand → prices and output — with…