Impact of Financial Inclusion on Monetary Policy Effectiveness in Nepal

The paper examines the influence of financial inclusion for effective implementation of monetary policy in Nepal, The deposits to GDP and loans and advance to GDP ratio are used as financial inclusion indicators. The study uses the money supply, loan rate, and exchange rate as primary monetary indicators. The research is based on secondary sources of data from 1975 to 2019.Unit Root test ,The Johnson Cointegration test, Vector Error Correction Model, and Granger Causality test have been applied in the study. The study concludes that financial inclusion have a significant role for effective implementation of the monetary policy both short-run and long-run. The application of digital technology and innovation, high penetration of financial literacy, and expansion of financial infrastructure may further enhance financial inclusion, thereby achieving monetary policy effectiveness in the nation. Besides this, the regulatory authority may adopt a strategy to diversify financial services in every corner of the country, focusing on poor and disadvantaged people to enhance financial inclusion.