Money Supply (M2) Growth Nepal 2026
Nepal's broad money supply (M2) grew by approximately 7% year-on-year during the first 8 months of FY 2025/26, with an absolute increase of Rs. 528,970 million. This analysis breaks down what's driving money supply expansion and its implications.
M2 Components (8M 2025/26 Changes)
| Component | 8M Change (Rs. M) | YoY Growth |
|---|---|---|
| Foreign Assets (Net) | +658,349 | Strong positive |
| Net Domestic Assets | -129,380 | Contraction |
| Domestic Credit | -22,720 | Near flat |
| Claims on Private Sector | +283,609 | ~5% |
| Net Claims on Government | -293,728 | Large decline |
| Broad Money (M2) | +528,970 | ~7% |
Key Drivers
1. Foreign Assets Driving M2 Growth: The Rs. 658,349M increase in net foreign assets is the dominant driver of M2 expansion. This reflects the massive current account surplus (Rs. 552,847.68M) driven by record remittances (Rs. 1,449,652.62M). Every rupee of remittance that enters the banking system expands the money supply.
2. Domestic Credit Stagnant: Unlike previous years where domestic credit drove money supply, credit growth has been subdued at ~5% for private sector claims. The NRB's rate tightening (repo at 5.0%) is moderating credit demand.
3. Government Sector Contracting: Net claims on government fell by Rs. 293,728M — meaning the government is depositing more in the banking system than it's borrowing. Government deposits increased Rs. 239,829M, partly explaining this.
M2 Growth vs Inflation
M2 growth of ~7% vs CPI inflation of 2.13% (8M average) suggests that real money supply is growing at ~5%. This expansion accommodates GDP growth (3.99%) without creating excessive inflationary pressure — for now. However, as inflation accelerated to 3.62% in March, the gap is narrowing.
Conclusion
Nepal's M2 growth is healthy at ~7%, primarily fueled by foreign asset accumulation (remittances). Unlike credit-driven expansion, remittance-driven M2 growth is less inflationary but creates dependency on external flows. The NRB must carefully manage liquidity to prevent the money supply from fueling further inflation.