Nepal’s macroeconomic outlook strengthens amidst inflation slowdown, BoP surplus, and record remittance

KATHMANDU: Nepal Rastra Bank (NRB) has released its latest macroeconomic and financial situation report, detailing significant macro-stability gains including low inflation, robust external sector performance, rising foreign reserves, strong remittance growth, and improved fiscal indicators based on the eleven-month data of fiscal year 2024/25 ending mid-June 2025.

Inflation Eases Sharply; Provinces Show Mixed Trends

Nepal’s year-on-year (y-o-y) consumer price inflation dropped to 2.72% in mid-June 2025, a sharp fall from 4.17% a year earlier. Food and beverage inflation stood at only 0.54%, while non-food and service inflation reached 3.94%.

Prices of ghee and oil soared by 10.06%, followed by non-alcoholic drinks (5.13%), fruits (3.51%), and pulses (2.85%). However, vegetables (-7.04%), spices (-3.06%), and meat & fish (-2.91%) recorded price declines. Among non-food sectors, inflation was high in miscellaneous goods & services (9.43%), clothing and footwear (6.82%), and education (5.88%).

Inflation was highest in Koshi Province (4.18%) and lowest in Gandaki Province (1.75%). By geography, the mountain region saw the highest inflation at 4.18%.

External Sector: Exports Surge 77.8%, Trade Deficit Widens Moderately

Nepal’s exports rose 77.8% to Rs.247.57 billion, a dramatic turnaround from a 3.0% drop a year ago. Exports to India jumped 112.6%, while exports to China and other countries grew by 3.0% and 4.4% respectively. Major export gainers were soybean oil, polyester yarn, jute goods, tea, and rosin.

Imports rose 13.1% to Rs.1644.80 billion, driven by higher imports of soybean oil, rice, transport equipment, and edible oil. Imports of petroleum products, gold, and fertilizers declined.

The total trade deficit widened by 6.3% to Rs.1397.23 billion, though the export-import ratio improved to 15.1% from 9.6% last year.

Remittance Inflows Soar by 15.5%, Surpassing Rs.1.5 Trillion

Remittance inflows reached a historic Rs.1532.93 billion, marking a 15.5% rise. In USD terms, inflows rose 12.7% to $11.25 billion. During the month of mid-May to mid-June 2025 alone, remittance inflows hit Rs.176.32 billion, a significant rise from Rs.128.91 billion in the same month last year.

Additionally, 452,324 Nepalis received first-time foreign employment approvals, while 308,067 received renewals—both higher than last year.

BoP Surplus Reaches Rs.491.44 Billion; Foreign Reserves Near $19 Billion

The current account posted a surplus of Rs.307.31 billion, up from Rs.200.38 billion last year. The overall Balance of Payments (BoP) surplus rose to Rs.491.44 billion (USD 3.62 billion).

Gross foreign exchange reserves rose 25.9% to Rs.2569.38 billion (USD 18.65 billion). These reserves are sufficient to finance 17.6 months of merchandise imports and 14.7 months of goods and services imports. The reserves-to-GDP ratio increased to 42.1%, reflecting improved external stability.

Oil Prices Down, Gold Prices Up, Rupee Weakens

International oil prices fell 12.52% to USD 71.29 per barrel, while gold prices surged 47.41% to USD 3435.35 per ounce. Meanwhile, the Nepalese rupee depreciated 2.97% against the US dollar over the year, with the exchange rate reaching Rs.137.44/USD in mid-June 2025.

Fiscal Indicators: Higher Spending, Improved Revenue, Growing Cash Surplus

The Government of Nepal’s total expenditure stood at Rs.1282.94 billion, comprising Rs.851.58 billion in recurrent, Rs.143.39 billion in capital, and Rs.287.97 billion in financial expenditures.

Revenue mobilization rose to Rs.1016.09 billion, with tax revenues at Rs.918 billion and non-tax revenues at Rs.98.08 billion. The government’s cash balance surged to Rs.339.98 billion, up from Rs.93.96 billion in mid-July 2024.

At the provincial level, governments spent Rs.124.90 billion while mobilizing Rs.182.60 billion in resources, mainly through federal grants and local revenue collection.

Monetary Developments: Money Supply and Credit Expand

Broad money supply (M2) rose 8.2%, and on a y-o-y basis, grew 12.0%. Reserve money increased 6.4%, while domestic credit rose 3.4%.

Private sector credit from BFIs rose 8.0% (Rs.407.62 billion), with highest lending to construction (12.9%), transport/public services (13.5%), and consumables (10.9%). Margin nature loans and import-based trust receipt loans surged by 42.8% and 62.2% respectively.

Deposit Mobilization and Interest Rates Fall

Bank deposits grew 8.0% (Rs.517.60 billion), with fixed deposits comprising 50.2%, savings 36.2%, and demand deposits 5.7%. Institutional deposits accounted for 35.5%.

Interest rates declined:

Average base rate of commercial banks fell to 6.09% from 8.17%.

Weighted average lending rate of commercial banks dropped to 7.99%, down from 10.15% last year.

Deposit rates also saw broad-based reductions across all BFIs.

Capital Market Booms: NEPSE Index at 2655.39, Market Cap Up by Rs.1 Trillion
Nepal Stock Exchange (NEPSE) index surged to 2655.39 from 2112.30 a year earlier. Market capitalization rose to Rs.4423.04 billion, with 272 listed companies.

Out of total market cap, 52.1% came from BFIs and insurance, 16.1% from hydropower, and 8% from investment companies. New securities worth Rs.63.5 billion were listed, including Rs.23.63 billion in bonus shares and Rs.22.40 billion in ordinary shares.

The Securities Board approved Rs.39.12 billion in new public issuances during the period.