Despite a significant drop in interest rates on loans, credit flow from banks and financial institutions remains sluggish. According to the latest report titled Current Macroeconomic and Financial Situation of Nepal published by Nepal Rastra Bank (NRB), the average interest rate on loans fell by nearly 3 percentage points over the past year. The rate, which stood at 11.38 percent on average, in mid-January 2024, has declined to 8.69 percent in mid-January 2025.

The decline in interest rates was primarily driven by an increase in investible capital, which enabled banks to lower deposit rates and subsequently reduce lending costs. However, bankers report a lack of demand for loans in the market. Santosh Koirala, president of the Nepal Bankers' Association, noted that slow loan demand has forced banks to park excess liquidity in the central bank. “There is no demand for new loans, and banks are compelled to deposit large sums of money with the central bank,” he said.

As of mid-January in the current fiscal year, NRB mopped Rs 140.8 billion from the market to manage liquidity. This included Rs 14.86 billion collected through deposit collection tools and Rs 125.14 billion through the permanent deposit facility. NRB has been actively managing liquidity by absorbing excess funds when banks have surplus cash and injecting funds during liquidity crisis.

Between mid-July and mid-January of the current fiscal year, deposits in banks and financial institutions grew by Rs 239.6 billion (3.7 percent), while private sector loans increased by Rs 265.6 billion (5.2 percent). Former banker Analraj Bhattarai attributed the slow loan growth to weak domestic economic activity and the central bank's stringent directives. He also pointed out that the current capital loan guidance, which restricts businesses from taking loans beyond trade-based financing, has limited entrepreneurs' access to credit.

While domestic economic activity remains sluggish, Nepal’s external sector has shown some resilience. Remittance inflows increased by 4.1 percent, reaching Rs 763.8 billion by mid-January. However, the growth rate of remittance inflows has slowed.

The current account registered a surplus of Rs 148.1 billion in mid-January, while Balance of Payments stood at Rs 249.26 billion. NRB reported that foreign currency reserves reached Rs 231.68 billion, sufficient to cover 17.3 months of goods imports and 14.4 months of goods and services imports. Meanwhile, inflation edged higher, with the consumer price inflation rate rising to 5.41 percent in mid-January, compared to 5.26 percent in the same period last year.

This news has been updated to correct the data in the opening paragraph.