This macroeconomic report is prepared based on nine month’s data of FY 2074/75 published by NRB. The key macro-economic indicators and variables are highlighted in the table below, and explained in further section:

A. NEPSE and Ratio of Market Cap to GDP

The NEPSE index as at Mid-April 2018 declined by 24.72% to close at 1,277.55 points, compared to 1,697.13 points in the same period last year. The market capitalization of NEPSE as well decreased from NPR 1,951.15 billion in Mid-April 2017 to NPR 1497.80 billion in Mid-April 2018. Out of total market capitalization, the share of banks, financial institutions and insurance companies stood at 81.3 percent, hydropower: 4.4 percent, manufacturing and processing companies: 2.7 percent, hotels: 1.6 percent, trading: 0.1 percent, and others: 9.8 percent respectively.

On the other hand, the ratio of market capitalization of NEPSE to GDP as at Mid-April 2018 has dropped down to 49.81% compared to 73.83% in the last year during the same review period.


To evaluate current scenario of interest rate in the economy, following rates are taken into consideration:

  1. Interbank Rate
  2. Base Rate of Commercial Banks


Interbank Rate

As shown in the chart below, the interbank rate of commercial banks has slightly declined to 4.12% in Mid-April 2018 compared to 4.87% in the previous month. Since last four months, interbank rate has stood above 4% level, which is on the higher end indicating commercial banks are facing difficulty in maintaining their CCD ratio and are in shortage of further loanable fund.

Base Rate

The base rate of commercial banks is in increasing trend, which has reached one-year-high of 10.4% as at Mid-April 2018 compared to 10.36% during the previous month. Last year during the same review period, the base rate of commercial banks stood at 8.6%, implying borrowers have to pay higher interest rate at present, which is a major setback for them.


As reported by NRB, the consumer price inflation in Nepal has increased to 5.3% in Mid-April 2018 compared to 3.8% a year ago. The current index of inflation is at 119.5 which was 120.6 in November 2017. Compared to base index of 113.5 in April 2017, the inflation is computed as 5.3%. However, the index at fiscal year-end (Mid-July 2016/17) was 115.9. So, based on this index, the inflation rate can be computed as 3.11% only. The average inflation index of nine months of FY 2074/75 stands at 119.3. Thus, the average inflation rate of nine months remained low at 4.1%.

The current rise in overall inflation is mainly due to surge in food inflation. However, the ongoing market interest rate on deposits or, government bond and corporate debentures can easily beat this inflation rate.

Real Interest Rate

Considering nominal interest rate as weighted average deposit rate of 6.64% (as at Mid-April 2018) and inflation rate of 5.3%, the real interest via Fisher equation is 1.34% only.


Deposit Growth: The deposits of BFI’s as at Mid-April End, 2018 increased to NPR 2,602.90 billion by 9.59%, compared to NPR 2,375.11 billion in Mid-July End, 2017. The growth during the same period last year was 8.14%. Out of the total deposits at the BFIs, the share of saving deposits decreased to 35.8 percent in Mid-April 2018 from 36.6 percent a year ago. However, the share of demand deposits increased to 8.7 percent from 7.5 percent, and fixed deposits to 44.9 percent from 40.6 percent a year ago. The share of institutional deposits in total deposit of BFIs stood at 46.1 percent in Mid-April 2018. Such share was 46.8 percent a year ago.

Credit Growth: The credit disbursement of BFI’s as at Mid-April End, 2018 increased to NPR 2,309.21 billion by 16.26%, compared to NPR 1,986.23 billion in Mid-July End, 2017. The growth during the same period during last year was 15.94%.

Moreover, if we compare the credit growth rate (16.26%) with deposit growth rate (9.59%) of BFI’s, then the credit growth rate is much higher than the deposit growth rate reflecting a tight liquidity in the banking system. However, on the brighter side, fiscal operations are gaining momentum as the year-end is nearing. Thus, acceleration in fiscal operations is expected to ameliorate financial conditions in days ahead.


Total liquidity mopped up in the nine months of FY 2017/18:

Till the nine months of FY 2017/18, NRB has mopped up NPR 130.25 billion through open market operation, out of which NPR 42.35 billion was mopped up under deposit collection auction, NPR 3.15 billion through 14 days’ deposit collection auction under interest rate corridor and NPR 84.75 billion through reverse repo auction on a cumulative basis. In the corresponding period of previous year, NPR 101.10 billion liquidity was absorbed.

Total liquidity injected in the nine months of FY 2017/18:

In contrast, during the nine months of FY 2017/18, NRB injected Rs. 329.62 billion through purchase of US dollars, whereas NPR 98.91 billion was injected through repo auction and outright purchase in the wake of liquidity crunch in the banking system compared to NPR 61 billion last year during the same period. In addition, BFI’s had also utilized Standing Liquidity Facility (SLF) of NPR 29.86 billion in the nine months of this fiscal year to further manage the liquidity in the banking system. The BFI’s had utilized such facility of NPR 61.74 billion during the same period last year.


Budget Deficit/ Surplus

In the first nine months of FY 2017/18, the Government of Nepal (GoN) was at a deficit of Rs. 112.75 billion in its budget against a surplus of Rs. 11.83 billion in the corresponding period of the previous year.

Government Revenue and Expenditure

In comparison to nine months of FY 2016/17, the government expenditure has increased by 53.27% to NPR 643.64 billion.

On the other hand, the government revenue witnessed a growth of 21.42% compared to corresponding period of the last fiscal year. The government revenue for the first nine months in this fiscal year stood at NPR 508.68 billion compared to NPR 418.95 billion in the first nine months of last fiscal year.


The country’s BOP position is in deficit by Rs. 14.60 billion till nine months of FY 2017/18, mainly due to huge deficit seen in current account by Rs. 171.64 billion as a result of significant increase in imports posing risk to external sector stability. During the corresponding period in last year, BOP was at surplus by Rs. 50.60 billion, whereas the current account was at deficit by Rs. 10.34 billion.

In the review period, the flow of foreign direct investment (FDI) amounted to Rs. 14.41 billion compared to Rs. 11.07 billion in the corresponding period of the previous year.


The workers’ remittance growth rate is subject to change in terms of US Dollar and Nepalese Currency based on exchange rate of NRs with Dollar. Hence, the workers’ remittance growth in terms of US Dollar and NPR has been presented below:

Remittance in Dollar Terms

In US Dollar terms, the nine months’ data of FY 2017/18 shows that worker’s remittance growth has witnessed an increment of 9.63% to reach $5,237.10 million compared to 5.14% growth in 2016/17.

Remittance in NPR terms

However, in NPR terms, the workers’ remittance increased by 5.6% to NPR 540.38 billion during nine months in FY 2017/18 compared to a growth of 6.30% during the same period in FY 2016/17. This decline in remittance growth rate in NPR terms can be explained by devaluation of Nepalese currency in terms of US Dollars lately.

As per the data of Department of Foreign Employment, the number of Nepalese workers going for foreign employment (except renew entry) fell by 6.8 percent in the review period. It had decreased by 3.2 percent in the same period of the previous year, too.