The NEPSE Journal
Market commentary, data deep-dives, and trading notes from the NEPSE Trading desk.
Commercial banks’ deposit rates in Nepal have dropped to 4.02% by mid-August 2082/83, down from 7.8% just two years earlier. This benefits borrowers through lower lending rates but reduces household returns on savings. While improved liquidity explains the decline, the trend poses risks if it discourages savings and shifts funds into informal or speculative sectors.
Nepal’s T-bill rates have dropped to around 2.65%–2.98% in mid-August 2082/83, reflecting strong liquidity, low inflation, and external stability. While this benefits borrowers and signals cheaper financing, investors face shrinking returns on safe assets and may need to seek alternatives. Sustained low rates depend on inflation, liquidity, and fiscal borrowing trends.
Private sector lending in Nepal grew only 7.7% in mid-August 2082/83, modest compared to past years of rapid expansion. Weak investment demand, cautious households, and banks’ risk-averse lending strategies explain the slowdown. Unless credit is channeled into productive sectors, Nepal risks stagnating in low investment and low growth despite ample liquidity.
Domestic credit growth in Nepal has slowed to 5.4% in mid-August 2082/83, down from 27% in FY 2020/21. While banks have liquidity from remittances, weak credit demand reflects low investor confidence and limited new investments. This poses risks to long-term growth, job creation, and capital formation unless policies succeed in channeling credit toward productive sectors.
Nepal’s narrow money (M1) rebounded by 22% in FY 2024/25 and grew another 17.3% in mid-August 2082/83, signaling improved confidence in the banking system and stronger liquidity. This recovery reflects remittance inflows, stable inflation, and secure deposit conditions, but unless banks expand credit to productive sectors, the boost may not fully translate into sustained economic growth.
Nepal’s broad money supply expanded by 12.5% in FY 2024/25, reflecting strong remittance inflows and easing liquidity pressures. This has stabilized interest rates and strengthened financial sector liquidity. However, with weak credit growth, much of the money supply is not flowing into productive investments, raising concerns about long-term sustainability and the need for policies to direct liquidity toward growth-driving sectors.
Nepal’s exports nearly doubled in early FY 2082/83, driven by traditional goods (carpets, garments, pashmina), agro and herbal products (tea, coffee, cardamom), and hydropower exports to India, with emerging contributions from light manufacturing and IT services. While this momentum is encouraging, sustaining it will require diversification, value addition, and stronger policy support to gradually reduce Nepal’s persistent trade deficit.
Nepal’s exports are growing fast (+95.7% in mid-August 2082/83), but imports—though slower (+11.4%)—still far exceed them, keeping the trade deficit wide. Strong remittances are covering the gap for now, but sustainable narrowing will depend on export diversification, value-added production, and shifting imports toward investment goods.
Workers’ remittances—Rs. 1,723 billion in FY 2024/25—are the backbone of Nepal’s external stability. They finance the trade deficit, sustain the current account surplus, and build record foreign exchange reserves above USD 20 billion. However, this stability is externally dependent, and without channeling remittances into productive investment, Nepal risks long-term vulnerability despite short-term resilience.
Nepal’s foreign exchange reserves have risen above USD 20 billion, ensuring over a year of import cover and strengthening economic stability. While this is a major achievement, the reserves are built mainly on remittances rather than exports, raising concerns about sustainability. The challenge lies in converting this financial cushion into productive investments that drive long-term growth.