Commercial Banks’ Deposit Rates Declining – Good or Bad?

Published on September 24, 2025

Deposit rates are a key signal of both liquidity conditions and the balance between savings and lending in the financial system. In Nepal, the weighted average deposit rate of commercial banks has steadily fallen in recent years. After peaking at 7.41% in FY 2021/22 and rising slightly to 7.86% in FY 2022/23, rates declined to 5.77% in FY 2023/24, and further to 4.19% in FY 2024/25. By mid-August 2082/83 (2025/26), deposit rates had slipped even lower to 4.02%, reflecting surplus liquidity and subdued credit demand.

For depositors, declining rates can be seen as a negative trend. Lower returns on savings accounts and fixed deposits reduce household income from financial savings, discouraging people from parking money in banks for long-term returns. In a country where remittance inflows form a large share of deposits, low interest earnings may reduce incentives for households to channel remitted money into the formal banking system, potentially diverting funds into alternative investments like gold, real estate, or informal lending.

From the perspective of borrowers and businesses, however, falling deposit rates are largely positive. Lower funding costs for banks translate into lower lending rates, making credit more affordable for households and firms. For example, the weighted average lending rate has already come down from 12.30% in FY 2022/23 to 7.76% by mid-August 2082/83. This creates opportunities for cheaper financing of housing, business expansion, and industrial projects, which can stimulate investment and support growth.

At the macro level, declining deposit rates reflect improved liquidity conditions in the financial system, thanks to record-high foreign exchange reserves and steady remittance inflows. However, the downside is that low deposit rates may fail to attract long-term savings, limiting banks’ ability to mobilize stable funds for large-scale projects. If households feel discouraged to save in banks, this could gradually weaken financial intermediation.

In short, declining deposit rates are a double-edged sword: they benefit borrowers by lowering credit costs but hurt savers by eroding returns. The challenge for policymakers and banks is to strike a balance—ensuring rates remain attractive enough to encourage deposits while low enough to support affordable lending and stimulate investment.

Policy Lessons from India: Can Nepal Control Inflation More Effectively?

India has kept inflation relatively moderate through strong agricultural systems, buffer stocks, and inflation-targeting policies, while Nepal has historically struggled with food-driven volatility. Nepal’s CPI fell below India’s in 2025/26 for the first time in four years, but to sustain this trend, Nepal must strengthen supply chains, adopt buffer policies, and set clearer inflation targets.

Inflation Convergence in South Asia: What Nepal-India CPI Data Reveals

Nepal and India’s inflation rates, once far apart, have gradually converged—Nepal’s CPI dropping from 7.74% in 2022/23 to 1.68% in 2025/26, while India’s remained steadier around 2–5%. For the first time in four years, Nepal’s inflation fell below India’s, highlighting both shared regional cycles and unique domestic vulnerabilities.

Nepal vs India: Monthly CPI Comparison and Regional Economic Impact

Nepal’s inflation fell to 1.68% in August 2025/26, below India’s 2.07%, reversing a four-year trend. While both economies share similar seasonal inflation cycles, Nepal’s sharper food-driven spikes contrast with India’s steadier, monsoon-driven patterns. Regionally, this convergence impacts household costs, trade competitiveness, and economic stability.

Inflation Gap Narrows: Nepal’s Deviation with India Falls to -0.39% in 2025/26

In August 2025/26, Nepal’s CPI stood at 1.68%, lower than India’s 2.07%, with the inflation deviation dropping to -0.39% for the first time in four years. While Nepal gained from falling food prices, India’s inflation stayed higher due to agricultural pressures, though both countries continue to face rising service costs.

Cross-Border Inflation Trends: How Nepal and India’s Prices Move Together and Apart

Nepal and India’s inflation trends usually move in sync, reflecting shared regional and global factors. But in August 2025/26, Nepal’s inflation (1.68%) fell below India’s (2.07%) for the first time in four years, thanks to easing food prices in Nepal, while India faced higher agricultural pressures.

Nepal vs India Inflation 2025/26: Why Nepal’s CPI Fell Below India’s for the First Time

In August 2025/26, Nepal’s inflation dropped to 1.68%, falling below India’s 2.07% for the first time in four years. While food price declines drove Nepal’s slowdown, India’s inflation held slightly higher due to agricultural pressures. However, Nepal’s service costs remain a long-term challenge, even as headline CPI looks favorable.