Nepal’s economy records strong external position amid low inflation, surging remittances: NRB

KATHMANDU: Nepal Rastra Bank (NRB) has released its Current Macroeconomic and Financial Situation Report for the first month of fiscal year 2025/26, showing a mixed but largely resilient economic landscape, with inflation at historic lows, remittances at record highs, and external sector indicators pointing towards stronger reserves and balance of payments.

Inflation at Lowest in Years

Consumer Price Index (CPI)-based inflation stood at 1.68 percent year-on-year in mid-August 2025, a sharp drop from 4.09 percent a year ago. Food and beverage prices declined by 2.28 percent, largely due to an 18.56 percent fall in vegetable prices and a 4.81 percent drop in spices. In contrast, non-food inflation climbed 3.95 percent, driven by a 10.6 percent rise in miscellaneous goods and services, and increases in education (7.67 percent) and clothing and footwear (6.84 percent).

Inflation varied across provinces, with Sudurpashchim recording the lowest at 0.31 percent and Koshi Province the highest at 2.84 percent. By geography, inflation was 2.26 percent in Kathmandu Valley, 1.33 percent in Terai, 1.56 percent in Hill, and 2.59 percent in Mountain regions.

Wholesale price inflation eased to 2.37 percent, down from 3.66 percent a year earlier.

Trade Rebounds with Export Boom

Merchandise exports surged 95.7 percent to Rs.23.93 billion compared to a 9.6 percent decline a year earlier. Exports to India shot up by 156.7 percent, while exports to China tumbled 65.2 percent. Key export gainers included soybean oil, palm oil, polyester yarn, cardamom, and jute goods, while zinc sheets, carpets, tea, and oil cakes fell.

Imports rose 11.4 percent to Rs.143.04 billion, with sharp increases in transport equipment, vehicle parts, rice, coal, and fertilizers. Imports of petroleum products, hot rolled sheets, and oil seeds dropped.

The trade deficit widened 2.5 percent to Rs.119.11 billion, though the export-import ratio improved to 16.7 percent from 9.5 percent last year.

Remittances Hit Record High

Remittance inflows skyrocketed 29.9 percent to Rs.177.41 billion (USD 1.27 billion), compared to Rs.136.6 billion a year earlier. Secondary income reached Rs.193.85 billion, reflecting the continued dependence on overseas workers.

A total of 44,466 Nepalis received first-time labor approvals, while 23,644 secured re-entry approvals, higher than last year.

Balance of Payments and Reserves

The current account surplus reached Rs.78.14 billion, more than double last year’s Rs.33.08 billion. Balance of Payments (BOP) recorded a surplus of Rs.89.30 billion (USD 641.2 million).

Gross foreign exchange reserves jumped to Rs.2806.04 billion (USD 20.03 billion), enough to cover 16.6 months of prospective imports of goods and services. Of this, NRB holds Rs.2511.45 billion and banks hold Rs.294.58 billion. Indian currency accounts for 23.4 percent of reserves.

Fiscal Situation: Revenue Exceeds Spending

Government expenditure reached Rs.46.31 billion, with recurrent expenses at Rs.18.48 billion, capital expenditure at just Rs.0.73 billion, and financial management spending at Rs.27.10 billion.

Revenue mobilization stood at Rs.84.47 billion, down from last year’s Rs.94.74 billion. Of this, Rs.80.67 billion was tax revenue and Rs.3.80 billion non-tax revenue.

Government cash balance with NRB rose sharply to Rs.226.64 billion.

Monetary and Banking Sector

Broad money (M2) contracted 0.7 percent during the review month, while reserve money fell 5.6 percent. Deposits at banks declined 0.8 percent to Rs.7208.09 billion, while private sector credit dipped slightly by 0.1 percent to Rs.5495 billion. On an annual basis, deposits expanded 12.5 percent, and private credit grew 8 percent.

Credit flow to industry (+0.8%), construction (+0.6%), and transport (+0.5%) increased, but lending to services (-1.5%) and retail (-0.5%) fell.

The weighted average deposit rate of commercial banks was 4.02 percent, while lending rates dropped to 7.76 percent, signaling an easing of financial costs compared to last year’s double-digit lending rates.

Stock Market Struggles

The NEPSE index fell to 2788.37, down from 3000.81 last year, while market capitalization dropped to Rs.4656.27 billion, representing 76.24 percent of GDP.

Out of 274 listed companies, BFIs and insurance firms account for 52.6 percent of market cap, followed by hydropower (15.3 percent), and investment companies (7.6 percent).

Securities worth Rs.8.24 billion were newly listed, while the Securities Board approved public issuances worth Rs.10.33 billion, including mutual funds, rights shares, and ordinary shares.

Global Price Trends and Exchange Rate

The international price of Brent crude oil plunged 17.5 percent to USD 67.30 per barrel, while gold surged 34.2 percent to USD 3335.50 per ounce.

The Nepali rupee depreciated 2 percent against the US dollar, with the buying rate at Rs.139.79 per USD in mid-August.