Inflation is down, reserves are up, but credit is weak and bad loans are rising. What’s really happening in Nepal’s economy? Let’s dive into the NRB Q3 analysis for FY 2081/82.

Every three months, Nepal Rastra Bank (NRB) takes a step back, looks at how the economy is doing, and adjusts its plans if needed. The goal? To make sure inflation doesn’t go crazy, banks don’t run out of money, and the economy keeps moving forward.

So far in this fiscal year (2081/82), we’ve finished three out of four quarters. That means we’re about ten months in, and NRB just published its third quarter review, covering what happened between Magh and Chaitra 2081.

Here’s the big picture:

• Prices are under control (more on that soon)
• The economy is growing, just not as fast as we’d like
• Interest rates are coming down, so it’s getting cheaper to borrow money
• Remittance is flowing in, helping us save foreign currency
• But at the same time, loans are growing slowly and banks are worried about bad loans

Oh, and globally? Things are a bit shaky. From America to China, the world economy is slowing down. Nepal Rastra Bank is keeping an eye on that too, because when big countries sneeze, small economies like ours can catch a cold.

In numbers:

• Nepal’s economic growth is expected to hit 4.61% this year, which is an improvement from last year’s 3.67%. That’s good news. It means things are picking up, especially in industries like construction, retail, and manufacturing.
• Globally, growth is slowing down, the IMF expects the world economy to expand just 2.8% in 2025, with developed countries growing even slower. This affects trade, remittances, and tourism.

So, Nepal is doing okay. Not booming, but better than before. And Nepal Rastra Bank seems cautiously optimistic.

Let’s Talk About Inflation: Is Everything Getting More Expensive?

Inflation. It’s a fancy word for “how much more expensive stuff gets over time.”

Now here’s the good news: Nepal Rastra Bank has managed to keep inflation under control. In fact, prices have gone up, but not as much as last year, and not enough to make everyday life unbearable.

Here’s what the numbers say:

• The average inflation over the past nine months was 4.57%.
• At the same point last year, it was 5.92%. So clearly, it has dropped.
• In Chaitra 2081 (the latest data point), inflation was 3.39%, down from 4.61% in Chaitra 2080.

Break it down further:

So if you feel like things still cost more than last year, you’re not wrong. They do. They’re just not jumping as fast as they were before.

Why is inflation coming down?

• Global oil prices are dropping, which means cheaper fuel and transportation.
  
   
• Food prices in India (our major trade partner) are also easing.
  
   
• The supply chain is more stable now. We’re not dealing with post-COVID chaos anymore.

Even though inflation rose a bit in the second quarter (Kartik-Poush), mainly due to floods and landslides disrupting supply chains and higher food prices from India, things improved by Chaitra.

And that’s a win for everyone; from small business owners to students to retirees.

But Nepal Rastra Bank isn’t celebrating just yet. Global politics (like new U.S. tariffs and trade wars) could still push prices up. So they’re watching things closely and staying flexible with their tools.

Nepal’s External Sector: Are We Safe from a Crisis?

Let’s face it. Nepal may be a small country, but it’s plugged into the global economy in big ways. We import fuel, food, electronics, machinery; you name it. And to pay for all that, we need foreign currency. So, when economists talk about the external sector, they’re talking about how much foreign money is coming in versus going out.

Here’s the short version: Things are looking good. For now.

1. Current Account and Balance of Payments: Still in the Green

Think of the current account like Nepal’s income statement with the rest of the world, it tracks money from remittances, exports, imports, tourism, and more. If the number is positive, we’re saving. If it’s negative, we’re borrowing.

According to Nepal Rastra Bank, by the end of Chaitra 2081, we were in pretty solid shape:

• Current Account Surplus: ₹ 210.22 Arba
• Balance of Payments (BoP) Surplus: ₹ 346.23 Arba

Compare that to the same period last year:

• Current account surplus was only ₹ 179.83 Arba
• BoP surplus was slightly higher at ₹ 365.16 Arba

So yes, BoP surplus slightly dipped, but the current account improved, meaning we earned more or spent less. Or both.

2. Trade Deficit: Still a Pain Point

Now, the tricky part: Nepal’s trade deficit is still huge, and getting worse.

• Exports grew 65.2%, a headline-grabbing number, which jumped to around 73% by the end of Baisakh. Click here to explore why this might not be good news
• Imports also rose, by 12.2%.
• Net result? The trade deficit grew by 6.4%, reaching ₹ 11 Kharba 21 Arba 34 Crore.

So while exports are growing, imports still far outweigh what we sell abroad,  something Nepal Rastra Bank acknowledges as a long-term challenge.

Top rising exports: soybean oil, polyester thread, woolen carpets, handicrafts, tea, and readymade garments.
These aren’t always made in Nepal from scratch;  many involve imported raw materials.

3. Foreign Exchange Reserves: Sitting Pretty

Now here’s something to smile about.

As of Chaitra-end 2081, Nepal’s foreign currency reserves are enough to cover 14.2 months of imports.

NRB’s official policy target is just 7 months. We’re double that; a strong buffer that protects us from sudden shocks like rising oil prices, currency crashes, or political drama in big countries.

And yes, Nepal Rastra Bank deserves credit here; by carefully managing remittance inflows and limiting unnecessary imports during tighter months, they’ve rebuilt this cushion.

4. Remittance: Still Flowing, But Slower

Remittance remains the lifeline of Nepal’s economy.

• In the first 9 months of FY 2081/82, remittance inflow grew by 7.3% (in USD terms), reaching $8.74 billion, or ₹ 11 Kharba 91 Arba 31 Crore.
• However, last year, the growth rate was 15.2%, so the pace is slowing.

Why? A few reasons:

• Destination countries tightening rules
• Rising cost of living abroad
• Increase in informal (hundi) channels

Still, remittance remains Nepal’s single biggest source of foreign income, and Nepal Rastra Bank is keen to keep it formal and flowing.

5. People on the Move: Students, Workers, and Tourists

Nepalis continue to head abroad for work and education.

• 6.08 lakh labor permits were issued so far this year
• Nearly 1 lakh students received NOC certificates to study abroad

• 9.15 lakh tourists visited Nepal between August 2024 and April 2025,  a sign that tourism is bouncing back

  Click here to Explore the pros and cons of foreign employment in Nepal, and how it impacts the economy, and the nation’s future!

Banking & Financial Sector: Things Look Calm, But There’s Trouble Beneath

If you only looked at interest rates, you might think everything is fine. Loans are cheaper, banks have enough money, and everything seems smooth.

But when you dig deeper, some cracks are starting to show, and Nepal Rastra Bank’s review doesn’t shy away from pointing them out.

Let’s break it down 

1. Interest Rates Are Dropping

Over the past year, the cost of borrowing has come down sharply.

• Base rate (what banks charge on average)
  Last year: 8.51% → Now: 6.29%
• Deposit rate (what savers earn)
  Last year: 6.53% → Now: 4.45%
• Lending rate (what borrowers pay)
  Last year: 10.55% → Now: 8.22%

What does this mean?

• If you’re taking a loan, good news: it’s cheaper.
• If you’re saving money in a bank, not so great: your interest earnings are lower.

Nepal Rastra Bank has purposely made borrowing cheaper to encourage businesses to invest and help the economy grow. But there’s a tradeoff; savers and pensioners now earn less on their deposits.

Click here to understand why reforming the interest rate in Nepal is crucial for savings, borrowing, and inclusive economic growth.

2. Credit Growth Is Slower Than Expected

Even though loans are cheaper, banks aren’t giving out as many as expected.

• Target set by NRB: 12.5% growth in loans to the private sector
• Actual growth so far: Only 8.1%

Why the gap?

• Businesses are still being cautious, many don’t want to take risks right now.
• People aren’t spending or borrowing like before.
• Banks are becoming more selective, especially because of rising bad loans (more on that below).

So even though the door is open, not many are walking through it.

3. Bad Loans Are Rising, and That’s a Problem

Bad loans (called NPLs or Non-Performing Loans) are those that people or businesses stop repaying. And they’re going up.

This means that for every Rs. 100 banks loan out, Rs. 5–13 are at risk of not being repaid.

That’s worrying because it shows that borrowers are struggling, and banks may face financial pressure if this continues. Rising bad loans also make banks nervous about giving new ones.

Discover how some banks manage to make profits even when bad loans keep rising.

4. Banks Have Money, But Aren’t Lending Much

Nepal Rastra Bank is keeping an eye on liquidity; the amount of money banks have on hand to give out as loans.

Here’s what happened:

• NRB absorbed Rs. 171 kharba+ from the market to avoid excess cash sloshing around
• Banks only used Rs. 2.7 arba in emergency overnight borrowing (which means: no panic)
• NRB also bought USD 3.63 billion from banks, injecting over Rs. 484 arba into the system

So clearly, banks are not short on cash. But they are not lending aggressively either, mostly because of weak demand and rising bad loans.

5. Digital Banking Is Growing Fast

Here’s a bright spot.

More people and businesses are moving toward digital payments; using online transfers, QR codes, wallets, and mobile banking.

One example: the RTGS system (used for large real-time transactions between big institutions) saw huge growth.

• In just 9 months, over Rs. 533 kharba moved through RTGS
• That’s a 113% increase from the same time last year

It’s a sign that Nepal’s financial system is becoming faster, more modern, and more transparent, and Nepal Rastra Bank is supporting this shift.

From the outside, Nepal’s banking sector looks calm. But underneath, some stress is building up, especially in the form of rising bad loans and slow credit growth. Nepal Rastra Bank is keeping rates low to encourage borrowing, and liquidity is strong.

The question is: will the private sector respond? And can banks stay healthy if more borrowers stop paying back their loans?

Those are the cracks worth watching.

Is the Government Spending Enough?

One of the big questions every year is this: is the government actually spending the money it promised to spend?

So far in FY 2081/82, the answer is mixed.

According to Nepal Rastra Bank's review, total government spending has increased, which sounds good at first. But if you look closer, the spending has mostly gone into regular expenses, not capital projects like infrastructure, health systems, or digital upgrades that could push the economy forward.

Here’s the breakdown from the Ministry of Finance data (through 10 months of the fiscal year):

• Total federal government spending: up 9.5% compared to last year
  (Totaling Rs. 11 kharba 57 arba 89 crore)
• But only 34.16% of the planned capital expenditure has been used
  (Rs. 1 arba 20 arba 37 crore out of what was allocated)

That means nearly two-thirds of the budgeted capital spending; the kind that helps build roads, bridges, schools, hospitals, hasn’t been touched. This isn't a new problem, but it remains a stubborn one.

Meanwhile:

• Recurrent (day-to-day) expenses make up 67.79% of spending
• Financial management expenses (like interest payments) account for 71.96%

So yes, the government is spending more than last year, but not necessarily where it matters most for long-term growth.

What about revenue?

On the revenue side, things are improving:

• Total revenue collection (including shares to provinces and local governments):
  Rs. 949 arba 76 crore, up 10.8% compared to last year
  (Last year’s growth was 7.5%)

So, revenue is up. Likely thanks to better customs, VAT, and income tax collection — but the quality of spending remains an issue.

And the debt?

Government borrowing has also been active:

• Internal borrowing: Rs. 301 arba 14 crore
• External borrowing: Rs. 89 arba 69 crore
• Total borrowing: Rs. 390 arba 83 crore

Out of this, the government has already repaid Rs. 215 arba 34 crore in domestic loans, leaving a net internal borrowing of Rs. 85 arba 80 crore.

Nepal Rastra Bank’s takeaway is clear: fiscal policy is supportive of monetary policy, but without improvements in capital spending, its impact on real economic growth remains limited.

Is Nepal’s Economy Finally Gaining Momentum?

Let’s turn to the real economy. Are people building more? Buying more? Selling more? Hiring more?

Nepal Rastra Bank’s third quarter review suggests that economic activity is finally picking up, and it’s not just wishful thinking, the data backs it up.

GDP Growth: A Bit Better Than Last Year

According to the Central Bureau of Statistics (CBS), Nepal’s economy is projected to grow by 4.61% in FY 2081/82, up from 3.67% the previous year.

It’s not a boom, but it’s a step in the right direction.

The sectors contributing to this growth include:

• Construction
• Manufacturing
• Wholesale and retail trade
• Tourism

These were the very sectors that suffered most during COVID and the post-pandemic slowdown. Their revival suggests that the economy is trying to stand back up.

Imports Tell a Story Too

Take a look at the kinds of things Nepal is importing.

In the first 9 months:

• Imports of intermediate goods (things used in production like machinery parts or raw materials) rose by 17.8%
• Last year, during the same period, they had dropped by 10.3%

That shift tells us something important: businesses are producing more, investing more, and expecting demand to rise.

Add to that the jump in tourist arrivals and a more reliable power supply from hydropower investments, and it starts to look like Nepal’s productive capacity is finally getting some traction.

So what’s driving the recovery?

A few key enablers:

• Nepal Rastra Bank’s lower interest rates are encouraging businesses to borrow and invest.
• Better liquidity in the banking system is making credit more available.
• Stable inflation is boosting consumer confidence.
• Improved electricity infrastructure (with 900 MW expected to be added each year for the next three years, according to Nepal Electricity Authority)
• Reforms in laws related to investment and foreign exchange

Of course, it’s not all smooth. Many businesses are still cautious. Credit growth remains below target. And government capital spending is lagging.

But the overall picture, as Nepal Rastra Bank frames it, is this:
We’re not out of the woods yet, but there’s finally some forward movement.

What Is Nepal Rastra Bank Doing Behind the Scenes?

If the economy is the engine, Nepal Rastra Bank is the one adjusting the throttle.

Whether it’s controlling inflation, ensuring there’s enough cash in the system, or helping businesses access credit, the central bank plays a quiet but powerful role. So what exactly has NRB done in this third quarter?

Let’s break it down.

1. Interest Rates: No Sudden Moves

Nepal Rastra Bank decided to keep all its key interest rates unchanged. In other words, they’ve taken a “wait and watch” approach, not tightening, not loosening either.

Here’s where the policy rates stand:

• Policy Rate (Repo Rate): 5.0%
• Standing Deposit Facility (SDF) Rate: 3.0% (lower bound)
• Bank Rate (upper bound): 6.5%

These form what’s known as the interest rate corridor, the range within which interbank lending should ideally stay. And as of Chaitra 2081, the average interbank rate was 3.0%, which means the system is functioning as intended.

So why no changes?

Because inflation is under control, liquidity is sufficient, and interest rates are already trending downward on their own. Nepal Rastra Bank is allowing the market to breathe, without throwing in more policy shocks.

2. Share-Backed Loans: Less Risky Now?

One notable move: NRB reduced the risk weight on loans backed by shares.

• It used to be 125%, meaning banks had to treat these loans as especially risky.
• Now, it’s been lowered to 100%, bringing it in line with regular loans.

This signals more confidence in market stability and could encourage more capital market activity, but it also comes with risk if stock prices get volatile.

3. Liquidity Tools in Action

Nepal Rastra Bank has also been using its standard tools to manage liquidity:

• Repo auctions, standing deposit facilities, and foreign exchange operations have helped balance the money supply.
• From Sawan to Chaitra, NRB absorbed Rs. 171.86 kharba worth of liquidity from the market,  preventing overheating.

At the same time, it also purchased USD 3.63 billion from banks, injecting Rs. 484.71 arba into the system. This shows that while banks are flush with cash, NRB is carefully managing it to avoid excesses.

4. Digital Payments: Quiet Revolution Underway

Perhaps the most underappreciated change is happening digitally.

• Real-Time Gross Settlement (RTGS) transactions grew by 113% year-on-year
• Transaction volume rose from Rs. 250 kharba to over Rs. 533 kharba
• That’s over 6 lakh transactions, mostly high-value ones between institutions

Meanwhile, QR codes, mobile banking, and wallets continue to expand their reach. NRB is actively supporting this shift, seeing it as a way to modernize payments, reduce cash dependency, and improve financial inclusion.

With Nepali vendors now able to accept foreign QR payments via local digital wallets, discover how this could further boost digital payment growth.

What Could Go Wrong, And What to Watch Next

Now that we’ve covered what’s going well, let’s talk about the flip side: risks and uncertainties.

Nepal Rastra Bank is cautiously optimistic, but it doesn’t deny that there are challenges ahead. Some of them are external. Some are homegrown.

1. Inflation Could Rise Again  

Right now, inflation is under control. But it’s one global shock away from reversing.

Risks include:

• Rising food prices in India (which directly affect Nepal)
• U.S. tariff hikes and trade tensions with China
• Natural disasters like floods disrupting local supply chains
• Volatile oil prices, which hit fuel and transportation costs

NRB notes that the price of petroleum products has recently come down, and India’s inflation is easing. But if any of these reverse, Nepal could see prices creep up again.

2. Bad Loans Are a Growing Concern

We mentioned earlier that non-performing loans (NPLs) have gone up across the banking sector. This puts pressure on banks’ health, especially development banks and finance companies, where NPLs have crossed 5% and 13%, respectively.

If this continues, it could:

• Make banks more reluctant to lend
• Trigger stricter regulations
• Create a drag on economic recovery

Nepal Rastra Bank is likely monitoring this closely, but it’s a space to watch.

3. Investment Still Needs a Boost

Despite interest rates falling and liquidity being ample, credit growth is lagging. The 12.5% growth target is unlikely to be met, with only 8.1% achieved so far.

Businesses are still playing it safe. And government capital expenditure isn’t helping much either.

For sustained recovery, private sector investment must rise. And for that, the environment must feel stable, predictable, and opportunity-rich.

4. External Sector Looks Strong, But Is It Durable?

Right now, foreign exchange reserves are solid, and the current account is in surplus. But there are two things that could change that:

1. Import demand rising again as the economy recovers
2. Slower remittance growth (already down to 7.3% this year, from 15.2% last year)

NRB expects balance of payments to remain in surplus, but notes that foreign currency use may rise if imports speed up.

In short, Nepal Rastra Bank has kept things stable through careful monetary policy, but that doesn’t mean the risks have disappeared. Whether this recovery sustains or stumbles will depend on how these challenges are handled in the final quarter of FY 2081/82 and beyond.

Final Thoughts

Three quarters down, one to go.

If there’s one message that comes through clearly in Nepal Rastra Bank’s third quarter review of FY 2081/82, it’s this: things are under control, but not quite on autopilot.

Inflation is lower than expected. Interest rates have come down. The foreign exchange reserves are strong. And the economy is showing signs of recovery after years of setbacks.

That’s not a small achievement.

But as always, the real test lies in what happens next. Will the banking sector remain healthy as bad loans creep up? Will government spending actually translate into real projects and jobs? Will businesses feel confident enough to borrow and expand? And will remittance and tourism continue to support Nepal’s fragile external balance?

Nepal Rastra Bank has done a commendable job of maintaining stability while gently steering the economy toward growth. It hasn’t rushed to cut rates further. It hasn’t overreacted to short-term movements. Instead, it has kept liquidity adequate, nudged credit into the right sectors, and let the economy catch its breath.

The fourth quarter report; Jestha to Ashadh, will reveal whether all this careful calibration translates into momentum, or whether familiar problems resurface: slow capital expenditure, tepid credit growth, and underwhelming private investment.

For now, though, the signal from Nepal Rastra Bank is clear: stay steady, stay flexible, and keep watching the data.

Because in a time of global uncertainty, that might just be the most responsible thing a central bank can do.

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