Analysis of Nepal's Interest Rate Trends and Their Implications

Published on June 7, 2024

Kathmandu, June 7, 2024 - The Nepal Rastra Bank (NRB) has published the latest figures on the structure of interest rates, providing a comprehensive overview from mid-July 2022 to mid-April 2024. The data reveals significant trends and shifts in policy rates, refinance rates, and interest rates across various financial institutions in Nepal.

Here's a visual representation of the trends in key policy rates in Nepal from mid-July 2022 to mid-April 2024. The chart showcases the changes in the Fixed Repo Rate, Fixed Deposit Collection Rate, Standing Liquidity Facility (SLF) Rate, and Bank Rate over this period. These trends highlight the Nepal Rastra Bank's monetary policy adjustments and their potential impact on the economic environment.

Policy Rates

One of the notable changes is in the fixed repo rate, which has seen a fluctuation from 5.5% in mid-July 2022, peaking at 7.0% by mid-April 2023, and stabilizing back at 5.5% by mid-April 2024. Similarly, the fixed deposit collection rate has mirrored this trend, moving from 4.0% to 5.5% and back to 4.0% in the same period.

The Standing Liquidity Facility (SLF) rate experienced an increase from 7.0% to 8.5% in mid-April 2023 but returned to 7.0% by mid-April 2024. Meanwhile, the bank rate has consistently decreased from 7.0% to 7.0% within the same timeframe.

Refinance Rates

The refinance rates for special, general, and MSME categories have shown some stability with minor adjustments. Special refinance rates remained steady at 2.0% till mid-October 2023 before increasing slightly to 4.5%. General refinance rates were constant at 5.0% until they dropped to 4.0% from mid-November 2023 onwards. The MSME refinance rate started at 4.0% and reduced to 4.0% by mid-December 2023.

Government Securities

Interest rates on government securities, including Treasury bills (T-bills) and development bonds, exhibit a declining trend. For instance, the interest rate on 28-day T-bills fell from 10.14% in mid-July 2022 to 2.71% by mid-April 2024. This decline indicates a reduction in short-term borrowing costs for the government. Similarly, the rates for development bonds have shown a decrease from around 2.65%-9.20% to 2.65%-10.93% within the same period.

Interest Rates in Financial Institutions

Interest rates for commercial banks, development banks, and finance companies show varied trends. Weighted average interbank rates among BFIs (Banks and Financial Institutions) dropped significantly from 7.01% in mid-July 2022 to 3.74% by mid-April 2024. Similarly, weighted average deposit rates and lending rates among commercial banks decreased, signaling a potential easing of liquidity conditions and an effort to stimulate economic activities.

The weighted average base rate for commercial banks also decreased from 9.54% to 8.58% by mid-April 2024, indicating a lower cost of borrowing.

Interpretation and Implications

The overall downward trend in various interest rates suggests the NRB's effort to ease monetary conditions to support economic growth. Lower rates across the spectrum—from policy rates to refinance rates and government securities—indicate an environment conducive to borrowing, potentially spurring investment and consumption.

However, the volatility and periodic spikes, especially seen in the SLF rate and fixed repo rate, hint at reactive measures taken by the central bank to address short-term liquidity crunches or inflationary pressures.

For businesses and investors, the decrease in borrowing costs can translate to increased investment in infrastructure, expansion, and other capital expenditures. For consumers, reduced lending rates may encourage higher spending and borrowing, boosting overall economic activity.

In conclusion, the trends depicted by the NRB's interest rate structure highlight a strategic approach to balance economic growth while maintaining liquidity and controlling inflation. Stakeholders in the financial sector must keep abreast of these changes to make informed decisions and leverage the prevailing economic conditions.

Related Blogs

Nepal Attracts Rs 44.66 Billion in Foreign Investment Commitments in First Eight Months of FY 2081/82

Top

4 min read

Nepal Attracts Rs 44.66 Billion in Foreign Investment Commitments in First Eight Months of FY 2081/82

Dipesh Ghimire has emerged as a prominent figure in Nepal’s journalism landscape, particularly renowned for his incisive reporting on the stock market. With a career marked by dedication, he has conducted over 5,000 interviews, including more than 100 with stock market investors, showcasing his deep engagement with the financial sector. His work has become a vital resource for investors seeking to navigate the complexities of Nepal’s share market, offering insights into trends, challenges, and opportunities. Currently, Ghimire serves as the operator and editor of Nepse Trading (https://www.nepsetrading.com/), a leading platform that delivers news, analysis, and updates on Nepal’s stock exchange. The website has established itself as a go-to source for investors, providing detailed reports on market movements, company performances, and investment prospects. Complementing this, his YouTube channel (https://www.youtube.com/@news.nepsetrading) offers visual and audio content, including interviews and market breakdowns, making stock-related information accessible to a broader audience. Through these platforms, Ghimire has played a pivotal role in enhancing transparency and awareness in Nepal’s financial ecosystem. Ghimire’s journalistic approach is rooted in facts, impartiality, and professionalism. His extensive interviews with investors not only highlight their personal experiences—successes and struggles alike—but also shed light on the broader dynamics of the stock market. This has proven invaluable for both novice and seasoned investors, helping them understand market intricacies and devise informed strategies. His efforts have bridged the gap between the technical world of stock trading and the general public, fostering a culture of informed investment in Nepal. On a personal note, Dipesh Ghimire is married to Simrita Pokharel, and the couple has a daughter named Shridi Ghimire. Balancing his family life with a demanding career, he continues to contribute tirelessly to financial journalism. His commitment has earned him credibility and respect among peers and investors alike, cementing his reputation as a trusted voice in the field. As Nepal’s stock market sees growing participation, the role of journalists like Ghimire becomes increasingly significant. With the rise in retail investors, there is a pressing need for reliable information and analysis— a gap that Ghimire effectively fills through Nepse Trading and his YouTube channel. His platforms empower investors to make sound decisions by demystifying market trends and offering real-time updates. This accessibility has not only boosted confidence in the stock market but also contributed to the development of a more robust investment culture in the country. Ghimire’s work stands out in Nepal’s financial journalism for its depth and reach. By leveraging both written and multimedia platforms, he has set a new standard for reporting on the stock market. His contributions have added a fresh dimension to the field, and there is widespread anticipation that he will continue to shape the discourse around Nepal’s financial markets in the years ahead. For now, Dipesh Ghimire remains a key figure driving awareness and accountability in the nation’s stock trading community.

DIPESH TOP 10 RESEARCH TOP 10 RESEARCH

19 Mar, 2025

Nepal’s Public Debt Climbs to 46.91% of GDP, Rises by Rs 241.93 Billion in Eight Months Amid Dollar Surge

Dipesh Ghimire

18 Mar, 2025

Maha prasad Adhikari’s Leadership at Nepal Rastra Bank: Experience Overshadowed by Weak Support

Top

3 min read

Nepal Prepares Rs 1.9 Trillion Budget for Upcoming Fiscal Year Amid Economic Challenges Kathmandu, March 07, 2025 – The Government of Nepal is gearing up to present a Rs 1.9 trillion budget for the upcoming fiscal year, marking a 12% increase over the revised budget of the current fiscal year. This ambitious fiscal plan comes at a time when the country faces shrinking resources, mounting debt, and a slowing economy, prompting calls for bold reforms to steer Nepal toward sustainable growth.

Dipesh Ghimire

8 Mar, 2025