Nepal's Base Rate Falls to 6.29% — Lowest in Five Years

Nepal’s commercial banking sector has witnessed a significant easing in lending conditions, as reflected in the latest decline in the base rate. According to data from Nepal Rastra Bank, the base rate stood at 6.29% in mid-April of fiscal year 2024/25, the lowest recorded in the past five years. This marks a substantial drop from 8.51% in mid-April 2023/24 and 10.03% in fiscal year 2022/23, signaling a shift toward more accommodative monetary conditions.

Historically, the base rate was at 8.50% in 2019/20 and then dropped to 6.86% in 2020/21 as the central bank took expansionary measures to counter the economic slowdown caused by the COVID-19 pandemic. The following years saw a tightening phase, with the base rate climbing to 9.54% in 2021/22 and further to 10.03% in 2022/23, driven by inflationary pressures and liquidity constraints.

The decline in the base rate in recent months reflects improved liquidity in the banking sector, a softening inflation environment, and a more stable macroeconomic outlook. Lower interbank and deposit rates have also contributed to reducing the cost of funds for banks, which directly impacts the base rate. This reduction benefits borrowers across sectors — especially individuals, SMEs, and industries dependent on credit — by lowering the cost of borrowing and encouraging investment activity.

However, while the drop in base rate is growth-friendly, it also narrows the interest margins for banks. With competitive pressures and a need to maintain profitability, banks will need to balance lower lending rates with cost efficiency and prudent credit risk management.

Overall, the dip to 6.29% signals optimism about economic stability and offers a boost to credit expansion. If sustained, this trend could help revitalize domestic demand and support Nepal’s ongoing post-pandemic economic recovery.