Liquidity Flow in Nepal Economy (8M 2025/26)
Understanding how money flows through Nepal's economy reveals its structural dynamics. The NRB's 8-month data maps three major liquidity channels: remittances, credit, and government spending.
Channel 1: Remittances → Deposits → Liquidity
- Workers' remittances: Rs. 1,449,652.62M enters the banking system
- This converts to foreign assets (+Rs. 658,349M in M2 terms)
- Banks receive deposits — total BFI deposits grew to Rs. 7,780,242M (+6.52%)
- Individual deposits: +8.99% — directly remittance-funded
- Excess deposits over credit demand creates surplus liquidity — pushing interbank rates to 2.75-3.0%
Channel 2: Credit → Economic Activity
- Private sector credit grew ~5% (Rs. +283,609M)
- Manufacturing: Rs. 933,479M (+5.59%) — productive credit
- Agriculture: Rs. 409,593M (-1.99%) — declining
- CB lending rate: 7.26% (Dec low) → 8.40% (Mar) — tightening moderates credit
Channel 3: Government → Fiscal Liquidity
- Revenue collected: Rs. 751,856.7M (+3.04%)
- Government deposits in banks: +Rs. 239,829M
- T-Bills reduced Rs. 65,900M — government net adding liquidity to system
- Development Bonds up Rs. 145,140M — absorbing some liquidity
The Net Liquidity Picture
Nepal's economy has ample liquidity in 2025/26, driven overwhelmingly by remittance inflows. The banking system is flush — evidenced by interbank rates (2.75-3%) well below the repo rate (5%). The NRB's January tightening has moderated but not eliminated this surplus.
Risks of Excess Liquidity
- Asset price inflation (real estate, stock market bubbles)
- Excessive import-driven consumption
- Misallocation of credit to unproductive sectors
- Difficulty for NRB to control inflation when liquidity is externally driven
Conclusion
Nepal's liquidity is healthy but concentrated in the remittance channel. Credit growth is moderate, government fiscal operations are net-neutral to slightly expansionary, and the NRB is actively managing excess liquidity through rate policy. The challenge is channeling this liquidity toward productive investment rather than consumption and imports.