Inflation drops to 1.87pc, exports surge 88pc, remittance inflows up 33pc — NRB reports

KATHMANDU: Nepal’s economy showed signs of external sector recovery but sluggish domestic credit expansion during the first two months of the current fiscal year 2025/26, according to the latest Macroeconomic and Financial Situation Report published by the Nepal Rastra Bank (NRB) on October 14, 2025.

The central bank’s data reveal that consumer price inflation fell to 1.87 percent year-on-year, down from 3.86 percent a year earlier — largely driven by declining food prices. At the same time, exports jumped by 88.6 percent, remittance inflows grew 33.1 percent, and the balance of payments (BoP) surplus reached Rs.153.68 billion, signaling macroeconomic stability supported by robust foreign exchange reserves.

Inflation remains below 2 percent

Consumer inflation stood at 1.87 percent in mid-September 2025, with food and beverage prices declining by 1.34 percent and non-food inflation at 3.70 percent. Prices of vegetables fell sharply by 12.74 percent, while edible oil prices rose by over 11 percent.
Among provinces, Koshi recorded the highest inflation at 2.99 percent, while Sudurpashchim had the lowest at 0.88 percent. The inflation rate in Nepal is slightly above India’s 1.54 percent, reflecting stable price movements in both economies.

Trade deficit widens despite export surge

Nepal’s exports increased by 88.6 percent to Rs.47.32 billion, primarily due to higher shipments of soybean oil, palm oil, cardamom, jute goods, and noodles.
However, imports rose 16.2 percent to Rs.305.16 billion, pushing the trade deficit to Rs.257.84 billion, an 8.6 percent increase. Exports to India surged by 139.9 percent, but exports to China plunged by 58.5 percent.
The export-import ratio improved to 15.5 percent, up from 9.6 percent a year ago, suggesting a relative improvement in trade performance.

Remittances, foreign reserves, and BoP show strong growth

Remittance inflows reached Rs.352.08 billion in the first two months — a 33.1 percent rise in Nepali rupees and 27.6 percent in US dollar terms.
The current account surplus reached Rs.130.69 billion, while the BoP surplus hit Rs.153.68 billion. Gross foreign exchange reserves rose 7.6 percent to Rs.2881.35 billion (USD 20.41 billion), sufficient to cover 16 months of prospective imports.
NRB said the share of Indian currency in total reserves stands at 22.5 percent.

Government spending outpaces revenue

In the fiscal front, government expenditure reached Rs.180.17 billion, up 31 percent compared to last year, while revenue collection fell by 5.3 percent to Rs.157.53 billion.
Recurrent expenditure surged to Rs.114.19 billion, but capital expenditure plummeted 57 percent to Rs.6.35 billion, indicating continued underperformance in development spending.
The government’s cash balance rose sharply to Rs.255.61 billion, signaling limited budget execution despite revenue shortfalls.

Monetary sector shows slow growth

Broad money (M2) increased by just 0.3 percent, while private sector credit rose only 0.9 percent in the review period. On a yearly basis, private sector lending grew 7.8 percent, far below pre-pandemic trends.
Deposits at banks and financial institutions (BFIs) grew by 0.5 percent, reaching Rs.7.29 trillion, and demand deposits now make up 5.8 percent of total deposits.

Despite the liquidity surplus, domestic credit declined by 0.8 percent, reflecting subdued private investment and slow credit demand.

Interest rates decline significantly

The weighted average deposit rate of commercial banks dropped to 3.96 percent, while the lending rate fell to 7.66 percent. The inter-bank rate averaged 2.75 percent, and the 91-day Treasury bill rate declined to 2.13 percent.
The fall in lending and deposit rates shows an easing liquidity situation and reduced borrowing costs across the banking sector.

Foreign exchange and commodity prices

NRB reported that the Nepali rupee depreciated 2.7 percent against the US dollar between mid-July and mid-September 2025, with the buying rate reaching Rs.140.84 per USD.
Globally, crude oil prices fell 5.8 percent to USD 69.69 per barrel, while gold prices surged 43 percent year-on-year to USD 3695.40 per ounce, influencing domestic bullion prices.

Financial and capital market performance

As of mid-September, there were 107 licensed BFIs, including 20 commercial banks, 17 development banks, 17 finance companies, 52 microfinance institutions, and one infrastructure bank, operating a combined 11,512 branches nationwide.
Nepal’s banking system remains stable, with core capital adequacy at 9.95 percent and total capital adequacy at 13.09 percent, while the non-performing loan (NPL) ratio stands at 5.09 percent.

Digital transactions continued to expand rapidly, with Rs.468 billion in mobile banking transactions and Rs.101 billion via QR code payments within two months.

In the capital market, the NEPSE index rose to 2672.25 points, up from 2580.76 a year earlier. Market capitalization reached Rs.4.47 trillion, or 73.15 percent of GDP. A total of 276 companies are listed, including 94 hydropower firms and 132 banks and insurance companies.

The Securities Board of Nepal (SEBON) approved public issues worth Rs.10.95 billion, including mutual funds, right shares, and ordinary shares, while NEPSE listed Rs.17 billion in new securities during the period.

Outlook: Stability with underlying challenges

NRB’s two-month data indicate macroeconomic stability, with strong external sector indicators — robust remittances, higher exports, and record foreign exchange reserves — offsetting domestic weaknesses like slow credit growth, low capital expenditure, and weak industrial performance.

While the central bank’s cautious liquidity management has kept inflation under control, experts caution that sustained growth will depend on revitalizing domestic production, boosting private sector confidence, and improving fiscal execution.

The report also underscores the need for coordinated monetary and fiscal policies to balance price stability, investment stimulation, and sustainable growth amid global uncertainties.