Is Nepal's economy truly growing or just appearing stable? Nepal Rastra Bank’s 10-month report reveals key trends in inflation, remittances, and spending.

Nepal Rastra Bank recently released its 10-month report covering the current macroeconomic and financial situation of Nepal, from mid-July 2024 to mid-May 2025. Think of it as a health checkup for the country's economy.

At first glance, things look pretty steady. Inflation is low. Remittances are coming in strong. Foreign exchange reserves are the highest they’ve ever been. The stock market is on the rise. So, by the numbers, the economy seems stable.

But here’s the contradiction. If everything looks so calm on paper, why do many people still feel like their wallets are shrinking, jobs are hard to find, and businesses are hesitating to invest?

This article walks you through the major takeaways from Nepal Rastra Bank’s update. In simple terms, we explore where the economy stands, what’s working, and where things are stuck.

Inflation Is Down, But Costs Still Feel High

Let’s start with inflation. This is basically a measure of how much more expensive life has gotten compared to a year ago. According to Nepal Rastra Bank, as of mid-May 2025, Nepal’s overall inflation rate stood at 2.77 percent. That’s a big improvement from last year’s 4.4 percent.

But if prices are rising more slowly, why do things still feel expensive?

The short answer is: it depends on what you’re buying. 

Food: Some Relief, Some Pressure

Prices of vegetables fell by 8.1 percent. Spices dropped slightly, and even meat and fish became more affordable. These brought down the food inflation average to 1.5 percent.

But not everything in your kitchen basket got cheaper. Ghee and oil prices went up by 11 percent. Fruits rose by over 6 percent, and pulses and legumes climbed 5 percent. So while some meals might cost less, essentials like cooking oil and dal continue to stretch household budgets.

Non-Food: Quietly Climbing

While food prices improved overall, non-food costs kept going up. Education fees rose nearly 6 percent. Clothing and footwear increased by more than 5 percent. Household goods and services saw a rise of between 4 to 9 percent, depending on the item.

This means that even if your grocery bills eased slightly, your rent, school fees, and daily expenses likely did not.

Location Matters

Inflation also varied by region. Rural Nepal experienced higher inflation at 3.2 percent compared to 2.6 percent in urban areas. Provinces like Koshi saw inflation above 4 percent, while Gandaki and Lumbini stayed closer to 2 percent. Those in the mountain region felt the biggest pinch, with inflation hitting 4 percent.

So while the national average is down, the day-to-day reality still depends on where you live and what you spend your money on.

Why It Still Feels Expensive

The headline number may be low, but it hides the uneven impact. Essential costs like transport, health, utilities, and education are still rising. That is why many households are not feeling the relief, even though Nepal Rastra Bank’s report shows a slowdown in overall inflation.

If you want to learn more about how the September floods affected inflation rate in Nepal, here’s the breakdown

Next, we look at how Nepalis working abroad are keeping the economy afloat through remittances, and why that money matters more than ever.

Remittances: The Real Engine Behind the Economy

When we talk about what’s keeping Nepal’s economy running today, the answer isn’t factories, exports, or even government programs.

It’s the people working abroad.

According to Nepal Rastra Bank, Nepali migrant workers sent home over Rs. 1.356 billion in the first 10 months of this fiscal year. That’s a 13 percent jump from last year, and more than what the government collects in taxes or what we earn from all exports combined.

In the same period, more than 685,000 Nepalis left the country for foreign employment, either for the first time or returning to their jobs overseas. That’s nearly double the population of Pokhara, heading abroad to earn and send money back home.

And this money does a lot. It pays school fees, covers medical bills, buys food, and builds homes. But it mostly goes into spending, not investment.

This is something Nepal Rastra Bank has been flagging for years: our remittance inflow is high, but it’s not translating into productive economic activity. People aren't putting their money into small businesses or startups as much as they could. Instead, most of it goes toward day-to-day living or into non-productive assets like land.

So while remittance is keeping the economy stable, it’s not helping it grow.

And that’s a risk.

If conditions in the Gulf or Malaysia change, or if fewer workers go abroad, our economy could feel the shock almost immediately. For now, though, remittances are the strongest thread holding everything together.

Nepal and the World: Trade, Remittances, and Reserves

Let’s zoom out a bit. How is Nepal doing globally? What are we buying and selling? And how is Nepal Rastra Bank managing the foreign money that flows through the country?

Trade: Still Import-Heavy

Nepal’s exports have jumped by 72.7 percent this year, which sounds impressive. But a big part of this growth comes from re-exports to India; things like soybean oil and polyester yarn that are imported, processed a little, then shipped out. Learn how this affects our export numbers.

That means the domestic gain is limited. We’re not producing more; we’re just acting as a trading route.

On the flip side, imports are still massive; Rs. 1.47 trillion so far this year, up by over 13 percent. We’re bringing in everything from fuel and vehicles to rice and construction materials.

The result? A trade deficit of Rs. 1.26 trillion. That’s still a huge gap, even if it's slightly better than last year.

So What’s Balancing the Books?

You guessed it: remittances. Again, they’ve played a key role in preventing the economy from tipping over.

And thanks to this inflow, Nepal now has record-high foreign exchange reserves.

As of mid-May 2025, Nepal Rastra Bank reports that reserves reached USD 18.4 billion, enough to pay for over 17 months of goods imports. That’s the best buffer we’ve had in years.

About 21 percent of these reserves are in Indian rupees, which makes sense, given our deep trade ties with India.

This strong reserve position gives Nepal Rastra Bank more control. It can manage the currency better, intervene in the market if needed, and ensure that importers have access to dollars or INR when they need them.

But There’s a Catch

These reserves are not growing because the economy is expanding. They’re growing because:

• Imports are rising slowly
• Credit growth is weak
• Government spending is delayed
• And remittances remain high

In other words, we’re holding on to foreign money because we’re not using it efficiently at home.

So while Nepal’s position looks good on paper, it’s less about economic strength and more about economic caution.

Next up: we turn to the government’s own finances. What is it doing with the taxes it’s collecting? And why is so much of that money still sitting unused?

Government Spending: Revenue Up, But Money Still Sitting Idle

While households are carefully budgeting their remittance income, the government seems to be doing the opposite; collecting more revenue, but spending it far too slowly.

Let’s start with the good news.

By mid-May 2025, the government had collected Rs. 922.43 billion in revenue, which is nearly a 10.9 percent increase from the same period last year. Most of this came from taxes, especially VAT, income tax, and customs duties. So money is coming in.

But here’s where it gets concerning.

Out of its total spending plan, the government has only used about 60 percent of its recurrent budget (for salaries, rent, and basic services), and just 39.3 percent of its capital budget (meant for infrastructure and development projects).

And it gets worse. A staggering Rs. 360 billion is just sitting in government accounts unspent.

That means schools weren’t built, roads weren’t repaired, and local projects that could have created jobs and boosted local demand simply didn’t happen.

Nepal Rastra Bank tracks this delay closely because unused government funds affect everything from liquidity in the banking system to interest rates and economic growth. When money doesn’t move, neither does the economy.

This isn’t a new problem. Every year, Nepal struggles to use its development budget on time. But the stakes are higher now. With so many people relying on government support and local infrastructure, slow spending equals missed opportunity.

So while the tax office may be doing its job, the rest of the machinery is still stuck in low gear.

How Is Money Moving Through the Economy?

Now let’s look at what’s happening inside the banking system.

More Deposits, Slower Loans

Nepalis are saving, but not borrowing, at the same pace.

As of mid-May 2025:

• Deposits at banks and financial institutions rose by Rs. 399.81 billion (6.2% increase in 10 months)
  (down from 7.8% in the same period last year)
• On a year-on-year basis, total deposits grew by 11.4%

This shows people still trust the banking system, even as interest rates fall. But lending is not keeping up.

• Private sector credit increased by Rs. 368.68 billion
  That’s a 7.3% rise, up from 4.7% last year, but still moderate

So what’s the problem?

According to Nepal Rastra Bank, most of the new lending is still going to:

• Construction
• Real estate
• Household consumption

Meanwhile, agriculture and industry, the sectors that generate long-term jobs and productivity, are seeing only limited credit growth.

This widening gap between deposit growth and credit disbursement suggests that:

The banking system has liquidity, but confidence is still missing.

Until money starts flowing into more productive sectors, Nepal’s economic engine will continue to run below full power.

Interest Rates Are Falling

In an effort to stimulate credit growth, interest rates have been declining:

• The base rate of commercial banks fell to 6.17 percent, down from 8.34 percent a year ago
• Deposit rates have dropped too; now averaging around 4.37 percent for commercial banks
• That means borrowers are paying less, but savers are earning less too

So while it’s cheaper to borrow, the demand just isn’t there. Businesses are cautious. Consumers are watching their wallets. And banks are left with more cash than they can lend out.

Nepal Rastra Bank’s Role

To manage this delicate balance, Nepal Rastra Bank has been actively adjusting liquidity.

It has absorbed Rs. 19.2 trillion from the banking system through various tools like deposit auctions and standing deposit facilities. At the same time, it has injected liquidity when needed, especially by purchasing foreign currency, which indirectly increases rupee supply.

In simple terms, Nepal Rastra Bank is keeping the pipes clear, but water isn’t flowing as strongly as expected.

Up next, we’ll dive into the one place where money is flowing fast: the stock market. It’s booming, but is it too hot for comfort?

Why Is the Stock Market Booming?

While credit growth is slow and businesses are cautious, the stock market seems to be telling a different story.

As of mid-May 2025, the NEPSE index stood at 2,620, up from around 1,999 just a year ago. That’s a 31 percent jump in under 12 months. Here’s a breakdown of how that affects investors and the 4.4T market.

So what’s fueling this sudden enthusiasm?

Lower Interest Rates Are Shifting Behavior

With bank deposit rates falling, many investors; especially individuals, are moving their money from savings accounts into stocks. It’s the classic search for better returns. Earning 4 percent on a fixed deposit doesn’t feel worth it when NEPSE is rising fast.

Margin Lending Is on the Rise

According to Nepal Rastra Bank, margin lending; loans people take specifically to invest in the stock market, has increased by over 39 percent. That’s a major sign that speculation is growing. Investors are borrowing more in hopes that share prices will keep climbing.

But this can also be risky. If prices fall suddenly, it can trigger a wave of panic selling, especially from those who used borrowed money to buy shares in the first place.

Where Is the Money Going?

The stock market is still dominated by a few key sectors:

• Banks and financial institutions make up more than half of total market capitalization
• Hydropower companies account for about 15 percent
• The rest is split between insurance, investment companies, and manufacturing

That means the NEPSE index doesn’t represent the entire economy. If just a few big players move, the whole index shifts with them.

New Shares Flooding the Market

There’s also been a steady stream of new securities this year:

• Rs. 21 billion in bonus shares
• Rs. 20.38 billion in ordinary shares
• Rs. 12.9 billion combined in mutual funds and right shares

That’s a lot of supply entering the market, which shows strong interest, but also raises the question: is demand keeping up?

Nepal Rastra Bank Is Watching Closely

While Nepal Rastra Bank doesn’t directly control the stock market, it regulates margin lending and closely monitors trends. If risk levels get too high, it can step in by tightening credit conditions. Check out how the central bank works in Nepal

So, while the market boom looks exciting, it’s built more on investor sentiment than real economic growth. And if conditions change, it could shift just as quickly.

Monetary Indicators: Liquidity Normalized, Rates Falling

Behind the scenes of all these trends; rising remittances, cautious lending, and a booming stock market, Nepal Rastra Bank has been carefully managing the flow of money through the economy.

Here’s how that looks right now.

Liquidity Is Under Control

Thanks to record remittances and slow government spending, there’s no shortage of money in the system. In fact, Nepal Rastra Bank has had to absorb over Rs. 19 trillion from the banking system to keep things from overheating.

At the same time, it has injected liquidity when needed, especially through foreign exchange purchases, which increase the supply of Nepali rupees.

This back-and-forth is crucial. Too much liquidity can lead to inflation and asset bubbles. Too little can choke credit and hurt growth. So far, NRB has kept the balance pretty well.

Exchange Rate: Stable, With Minor Depreciation

The Nepali rupee has depreciated by 2.11 percent against the US dollar in the past year. As of mid-May 2025, the buying rate stands at Rs. 136.24 per USD.

This isn’t a huge shift, and thanks to the strong foreign exchange reserves, Nepal has room to manage volatility. Nepal Rastra Bank also maintains a fixed exchange rate with the Indian rupee, which has helped keep trade and remittance flows stable.

Interest Rates Are on a Downward Slope

Across the board, interest rates have fallen:

• The base rate for commercial banks dropped to 6.17 percent, from over 8 percent a year ago
• Deposit rates now average around 4.37 percent
• Lending rates have also declined, especially for productive sectors like agriculture and small businesses

This is intentional. Nepal Rastra Bank has been trying to stimulate investment and spending by making borrowing cheaper. The idea is to encourage businesses to take loans and expand.

But as we saw earlier, credit growth remains sluggish, which means confidence in the economy is still not where it needs to be.

Summary: Stable on the Surface, Unsettled Beneath

After going through the entire 10-month economic update from Nepal Rastra Bank, one thing is clear:

Nepal’s economy looks stable, but that stability rests on some very shaky ground.

Let’s quickly recap what we’ve seen:

• Inflation is low at 2.77 percent, thanks mostly to falling food prices. But non-food items like education and household goods are still rising in cost, especially in rural areas.
• Exports have surged, up by over 70 percent. But so have imports, and the trade deficit continues to widen.
• The one thing keeping everything afloat? Remittances, which hit Rs. 1,356 billion in just ten months. This remains the single most powerful economic force in the country.
• As a result, foreign exchange reserves have reached a record high, enough to cover 17 months of imports. That gives Nepal Rastra Bank breathing room.
• But on the other side, government spending has lagged, with more than Rs. 360 billion in unused funds sitting in central accounts. Development spending remains low.
• Credit is growing slowly, interest rates are falling, and more people are shifting savings into stocks rather than businesses.
• The stock market has surged, fueled more by cheap loans and speculative momentum than real economic strength.

So, Where Does That Leave Us?

The story that emerges from Nepal Rastra Bank’s report is one of external strength but internal hesitation.

Nepal is doing well in terms of:

• Maintaining price stability
• Building up reserves
• Managing foreign currency risks

But when it comes to:

• Domestic production
• Private investment
• Job creation
• Budget execution

We’re falling short.

It’s like we’ve built a solid foundation, but haven’t yet started building the house.

What to Watch in the Months Ahead

As we move toward the end of the fiscal year, here are a few things to keep an eye on:

1. Will credit growth pick up now that interest rates are lower?
   This is key for business expansion and job creation.
2. Can the government improve capital expenditure in the final quarter?
   Spending that money is crucial for development and economic momentum.
3. Will the stock market stay strong, or correct if speculative lending is tightened?
   Nepal Rastra Bank may intervene if margin lending becomes risky.
4. How long can Nepal rely on remittance to cover trade gaps and fund the economy?
   Without more domestic opportunities, migration will remain our economic engine, and that’s not sustainable forever.

Final Thoughts

Nepal Rastra Bank has done its job well in managing macroeconomic stability. But stability is not the same as growth. To truly move forward, the private sector, government, and financial institutions need to convert this stable foundation into something more productive, inclusive, and forward-looking.

Because in the long run, an economy powered by remittance and imports can only go so far.

It’s time we ask: How do we start building more at home?

Additional Resources:

• Is Nepal Electricity Authority Risking Rs. 66B in Hydropower?
• NEPSE Chart This Week: Why Did 212 Stocks Decline?
• New Tax Rate in Nepal 2082/83: Budget Changes for Business
• Nepal Rastra Bank’s Q3 Review of Monetary Policy: What’s Up?