While Nepal's external economic sectors show significant strength and inflation remains largely under control, the central bank highlights a major domestic hurdle: managing excess liquidity in the financial system caused by a severe slowdown in domestic demand.
Key Economic Indicators at a Glance
The report reveals a stark contrast between a booming external sector and a sluggish domestic credit market:
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Inflation Control: Average consumer price inflation for the first 10 months of the fiscal year was kept to a low 2.66%—well below the central bank's 5.0% target ceiling. However, year-on-year inflation ticked up slightly to 5.04% by mid-April.
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Massive Forex Reserves: While the initial goal was to maintain reserves sufficient for a 7-month import cushion, Nepal’s foreign exchange reserves surged, boasting a massive 19.2-month import capacity by mid-April.
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The Credit Gap: Broad money supply grew by 15.2% (outstripping the 13.0% projection). However, credit expansion to the private sector severely lagged at just 6.5%, missing the central bank's 12.0% target.
Why is credit growth so low? The NRB attributes the sluggish credit flow to low morale within the private sector, a lack of domestic consumer demand, and a rising Non-Performing Loan (NPL) ratio among banks, which has limited their lending capacity.
Crashing Interest Rates
Due to the massive pile-up of unutilized cash (excess liquidity) in the banking ecosystem, interest rates have plummeted:
Major Policy Adjustments & Increased Loan Limits
In an effort to stimulate domestic demand and revitalize the economy, the NRB has intentionally transitioned to a highly flexible monetary policy stance, raising caps across several key loan sectors:
| Loan Category |
Previous Limit |
New Limit |
| Private Home Loans (Purchase/Construction) |
Rs. 2 Crore |
Rs. 3 Crore |
| Margin Loans (Share Market) |
Rs. 15 Crore |
Rs. 25 Crore |
| Personal Overdrafts |
Rs. 50 Lakh |
Rs. 1 Crore |
| Microfinance Collateral Loans |
Rs. 7 Lakh |
Rs. 15 Lakh |
| SME Digital Lending Cap |
— |
Rs. 10 Lakh |
Additionally, the NRB has abolished the rule that required banks to keep institutional fixed deposit rates at least 1 percentage point lower than individual fixed deposit rates.
The central bank noted that both international and domestic factors have weighed heavily on economic momentum. Globally, geopolitical tensions, rising oil prices, and supply chain disruptions continue to pose risks. Domestically, unseasonal heavy rains, floods, and landslides impacted agricultural output, while a standstill in both public and private construction—paired with bad loans lingering from the past—continues to hurt bank balance sheets and investor confidence.
