BFIs interest rates hit 13-year low: Why this is the right time to buy property, automobiles, gold, and long-term assets

KATHMANDU: Nepal’s banking sector has entered an exceptionally low interest-rate cycle, with deposit and lending rates falling to their lowest levels in more than 13 years. While the trend has raised concerns among depositors, economists and market participants say the current environment presents a rare window of opportunity for households, businesses, and long-term investors to acquire fixed assets and lock in financing at historically cheap rates.

According to Nepal Rastra Bank (NRB), the weighted average lending rate of banks and financial institutions declined to 7.38 percent in Kartik, the lowest level since the central bank began publishing such data in 2012. Deposit rates have fallen even further. The one-year individual fixed deposit rate of commercial banks dropped from 5.045 percent in Mangsir to 4.839 percent in Poush, reflecting abundant liquidity and weak demand for credit.

Excess Liquidity Driving Cheap Credit

The prolonged decline in interest rates is largely attributed to excess liquidity in the financial system. Rising remittance inflows and subdued borrowing have left banks with surplus lendable funds of around Rs 1,150 billion. As a result, banks are cutting deposit rates month after month and easing lending terms to attract borrowers.

Nepal Rastra Bank has reinforced this trend through accommodative monetary policy. In its first quarterly review of the current fiscal year, the central bank reduced the Standing Liquidity Facility rate from 6 percent to 5.75 percent and cut the policy rate from 4.50 percent to 4.25 percent. The objective, according to NRB officials, is to narrow the interest rate corridor and lower overall funding costs in the banking system.

With base rates of commercial banks falling to an average of 5.44 percent, borrowing costs for housing, automobiles, and business loans have dropped sharply, creating favorable financing conditions not seen in more than a decade.

Property and Housing: Lower EMIs, Better Affordability

Real estate and housing are among the sectors most directly impacted by lower interest rates. Mortgage rates have declined in tandem with the base rate, reducing monthly installment burdens for homebuyers.

Bankers say the current cycle is particularly attractive for buyers planning to finance property purchases through long-term loans. With lending rates near historic lows, borrowers can lock in fixed or semi-fixed interest rates, shielding themselves from future rate hikes once the economic cycle turns.

Industry observers note that stagnant property prices in several urban areas, combined with cheaper financing, have improved affordability for end-users. For long-term buyers rather than short-term speculators, the present conditions are being viewed as a strategic entry point into the housing market.

Automobiles and Consumer Durables Gain Momentum

Lower lending rates are also supporting demand for automobiles and other big-ticket consumer goods. Auto dealers say vehicle loans have become significantly cheaper, reducing the overall cost of ownership.

Banks report increased inquiries for auto loans, particularly for electric vehicles (EVs), which are already supported by favorable policy incentives. Analysts say lower interest costs, when combined with reduced fuel and maintenance expenses for EVs, could accelerate a shift toward cleaner transport options.

For consumers, the decline in interest rates translates into lower down payments, longer repayment tenures, and reduced monthly financial pressure.

Fixed Assets and Business Investment

Beyond housing and automobiles, economists say the low-interest environment favors investment in productive fixed assets such as machinery, equipment, and infrastructure.

For small and medium enterprises, cheaper credit reduces capital costs and improves project viability. NRB data show that imports of raw materials and intermediate goods have increased in recent months, signaling a gradual revival of production activity.

However, experts caution that unless private investment picks up more broadly, excess liquidity may continue to weigh on the financial system, limiting the overall economic impact of low rates.

Gold, Silver, and Precious Metals as Value Hedges

With deposit returns falling below 5 percent, investors are increasingly exploring alternative stores of value. Market analysts say gold and silver have regained attention as hedging instruments, particularly in an environment where real returns on savings are narrowing.

Although inflation remains relatively low, economists warn that prolonged excess liquidity could fuel asset price inflation in the medium term. In such conditions, precious metals are often viewed as a hedge against currency depreciation and financial uncertainty.

Jewelry traders report steady interest in gold, while silver has attracted attention from smaller investors due to its lower entry cost and industrial demand outlook.

Stocks and Fixed-Rate Instruments in Focus

The declining interest-rate cycle is also reshaping investor behavior in capital markets. With bank deposits offering diminishing returns, fixed-interest securities and dividend-paying stocks are becoming relatively more attractive.

Market participants say long-term investors may benefit from locking in fixed-rate instruments at current yields before rates potentially bottom out further. Similarly, lower borrowing costs improve corporate profitability, which could support equity valuations over time.

However, economists caution against speculative behavior, stressing that investment decisions should be aligned with risk tolerance and long-term financial goals.

Risks: Capital Flight and Liquidity Trap Concerns

Despite the apparent opportunities, experts have flagged risks associated with persistently low interest rates. Economist Keshav Acharya has warned that reduced returns on deposits could encourage capital flight, particularly to India, where slightly higher interest rates can attract funds from Nepal’s border regions.

Another concern is the possibility of a “liquidity trap,” where further rate cuts fail to stimulate borrowing and investment. Economist Nar Bahadur Thapa has argued that in such a scenario, monetary policy alone becomes ineffective, requiring stronger fiscal intervention through government spending and infrastructure investment.

Window of Opportunity with Caution

With interest rates at a 13-year low, analysts broadly agree that the current environment offers a strategic opportunity for asset acquisition and long-term investment. Lower borrowing costs, ample liquidity, and accommodative policy have created conditions favorable for buying property, vehicles, productive assets, and even precious metals.

However, they emphasize that the opportunity comes with the need for careful assessment. While cheap credit can boost investment and consumption, sustained economic recovery will ultimately depend on productive deployment of capital rather than speculative activity.

For now, Nepal’s low-interest-rate phase is being viewed as a rare financial window—one that borrowers and investors may find difficult to ignore, but must approach with discipline and long-term perspective.