Quick Summary: Excess Liquidity Pushes Nepal interest rates
- Nepal’s interest rates fell to 6.90% by mid-March 2026, down from 13.03% in 2022-23, yet borrowing demand remains low.
- Nepal Rastra Bank absorbed Rs125 billion in April to manage excess liquidity, highlighting ongoing economic challenges.
- Total deposits in Nepal reached Rs7,952 billion, while lending stood at Rs5,874 billion, indicating underutilized cash reserves.
- The NEPSE index rose only 0.25% between May 4 and May 8, reflecting investor caution amid economic uncertainty.
- Analysts are watching fiscal policies closely, as upcoming budget announcements may influence credit demand and investment.
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Nepal’s financial landscape is in turmoil as interest rates plummet to historic lows, yet the economy remains stagnant. The weighted average lending rate has dropped to 6.90 percent by mid-March 2026, a significant decrease from 13.03 percent in the fiscal year 2022-23. Despite this, the appetite for borrowing is tepid, forcing Nepal Rastra Bank (NRB) to intervene by absorbing surplus liquidity.
The central bank’s efforts to manage excess reserves, including a Rs125 billion operation in April, underscore the challenges facing Nepal’s economy. With banks holding over Rs1.20 trillion at the central bank as of December 2025, these reserves are not translating into increased lending, raising questions about the effectiveness of current economic measures.
Investors are treading cautiously, as reflected by the NEPSE index’s modest 0.25 percent growth between May 4 and May 8. Market analyst Manish Aryal noted that while the market returned to a support zone, investors remain in a “wait-and-see mode” ahead of the national budget announcement.
Data from Nepal Rastra Bank’s fiscal 2025-26 report reveals a credit-deposit ratio of just 73.18 percent as of May 5, 2026. Total deposits reached Rs7,952 billion, while lending stood at Rs5,874 billion, indicating significant cash reserves are not being effectively utilized for loans, impacting economic growth.
The tension between surplus liquidity and weak economic activity raises concerns about Nepal’s potential slide into a liquidity trap. While NRB’s report challenges this notion, it acknowledges that excess liquidity diminishes incentives for banks to lend and borrow reserves. This ongoing situation points to a broader issue within the economic framework.
The future of Nepal’s economy hinges on resolving the disparity between low interest rates and insufficient credit demand. The central bank’s next moves, along with fiscal strategies, will be crucial in determining whether the current phase leads to renewed growth or highlights deeper economic challenges.
One April 10 report said the bank would absorb Rs125 billion, and another market report on April 15 said the central bank announced a 56-day deposit collection of Rs40 billion, with bids submitted through the OBSS platform and settlement due on June 10, 2026. 90 percent by mid-March 2026, which officials and analysts described as the lowest level on record.
03 percent in fiscal year 2022-23, and it is happening alongside a glut of idle money in the banking system rather than a surge in new productive borrowing. Market analyst Manish Aryal told the Kathmandu Post, “The market returned after touching around 2,685 points during intraday trading on Tuesday, within the psychological support zone of 2,680 to 2,700 points, which is a positive sign,” but he also said investors were in “a wait-and-see mode” ahead of the coming budget announcement.
18 percent as of May 5, 2026, while total deposits stood at Rs7,952 billion and total lending at Rs5,874 billion. 20 trillion in December 2025, a historic high.
Fiscal Nepal reported in April that 19 of Nepal’s 20 class-A banks set maximum deposit rates below 5 percent for Baisakh, showing how aggressive the repricing has become. On the monetary side, the next meaningful trigger will be whether NRB has to continue large-scale deposit collection auctions after the current June 10, 2026 settlement date for the Rs40 billion absorption operation, or whether loan demand finally starts rising enough to drain some of the surplus naturally.
NEPSE Trading reported on May 13 that “excess liquidity pushes bank interest rates lower as credit demand remains weak,” while earlier reports from April showed Nepal Rastra Bank moving to absorb huge sums directly from the system. Instead of lower rates automatically igniting a risk rally, the Nepal Stock Exchange has been moving cautiously.
Total deposits in Nepal reached Rs7,952 billion, while lending stood at Rs5,874 billion, indicating underutilized cash reserves. 25% between May 4 and May 8, reflecting investor caution amid economic uncertainty.