Nepal Banking Liquidity Situation 2026 Explained
Nepal's banking sector liquidity in FY 2025/26 tells a story of two phases: excess liquidity in the first half (Aug-Dec 2025) followed by tightening in the second phase (Jan-Mar 2026). The NRB's 8-month data reveals how monetary conditions have evolved.
Key Liquidity Indicators
| Indicator | Aug-Nov 2025 | Dec 2025 | Jan-Mar 2026 |
|---|---|---|---|
| Repo Rate | 4.50% | 4.25% | 5.00% |
| Interbank Rate | ~2.75% | ~2.74% | ~3.00% |
| CB Deposit Rate (Wtd Avg) | 3.85-4.02% | 3.66% | 4.54-4.75% |
| CB Lending Rate (Wtd Avg) | 7.38-7.76% | 7.26% | 8.40-8.69% |
Phase 1: Excess Liquidity (Aug-Dec 2025)
From August to December 2025, the banking system had ample liquidity. Deposit and lending rates fell steadily — CB lending rates dropped from 7.76% to 7.26%, the lowest point in the cycle. The interbank rate hovered around 2.75%, well below the repo rate of 4.5%, indicating banks had surplus funds. Remittance inflows flooding the system and moderate credit demand contributed to this easing.
Phase 2: Tightening (Jan-Mar 2026)
Starting January 2026, conditions shifted. The NRB raised the repo rate to 5.0% (from 4.25% in Dec), and rates across the board followed. CB lending rates jumped to 8.69% (Jan) before easing slightly to 8.40% (Mar). This tightening appears driven by rising inflation (CPI at 3.62% by March) and NRB's desire to prevent overheating.
Deposit Growth: Healthy at +6.52%
Total BFI deposits grew from Rs. 7,304,087M (Jul 2025) to Rs. 7,780,242M (Mar 2026) — a 6.52% increase over 8 months. Individual deposits (Rs. 4,970,078M) remain the largest component, growing +8.99% from July. This deposit growth ensures adequate lending capacity for banks.
What This Means
- Borrowers: Loan rates are rising — borrowing was cheapest in Dec 2025 at 7.26%, now at 8.40%
- Depositors: Deposit rates are recovering from Dec 2025 lows, now at 4.54%
- Banks: Spread (lending minus deposit rate) stable at ~3.7-3.9% — margins are comfortable
- NRB: Successfully signaling tighter policy without causing liquidity stress
Conclusion
Nepal's banking liquidity is in a healthy transition — from surplus to normal. The NRB's rate adjustment from 4.25% to 5.0% is a measured response to rising inflation, and the banking system has absorbed the shift smoothly with adequate deposits and no signs of a liquidity crunch.