This macroeconomic report is prepared based on two month’s data of FY 2075/76 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-September 2018 declined by 17.89% to close at 1,256.53 points, compared to 1,530.31 points in the same period last year. The market capitalization of NEPSE as well declined from NPR 1,775.60 billion in Mid-September 2017 to NPR 1,496.64 billion in Mid-September 2018. Of the total market capitalization, the share of banks, financial institutions and insurance companies stood at 80.8 percent, hydropower 4.2 percent, manufacturing and processing companies 2.7 percent, hotels 1.7 percent, trading 0.1 percent, and others 10.5 percent respectively.

On the other hand, the ratio of market capitalization of NEPSE to GDP as at Mid-September 2018 has significantly dropped down to 49.77% compared to 67.19% in the last year during the same review period.


To evaluate current scenario of interest rate in the economy, interbank rate and base rate of commercial banks are taken into consideration.

Interbank Rate

As shown in the chart below, the interbank rate of commercial banks has declined to 1.68% in Mid-September 2018 compared to 1.88% in the previous month. The interbank rate stood above 4% level from Mid-December, 2017 till Mid-June, 2018, which was on the higher end due to tight liquidity in the banking system. After that point of time, there has been a decline in interbank rate indicating some ease in liquidity.

Base Rate

With some ease of liquidity in the banking channel, the weighted average interest rate on deposits of Commercial Banks has gone down to 6.30% and consequently, the base rate as well has gone down in Mid-September 2018 to reach at 10.03%, which was 10.12 in the previous month. Last year during the same review period, the base rate of commercial banks stood at 10.13%. The base rate of commercial banks was in increasing trend, and reached one-year-high of 10.47% in Mid-May 2018.


As reported by NRB, the consumer price inflation which was 3.39% a year ago increased to 3.90% in Mid-September 2018 mainly due to increase in the price of non-food and services group which contributed to a rise in overall inflation in the review period. 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 6.30% (as at Mid-September 2018) and inflation rate of 3.90%, the real interest via Fisher equation is 2.40% only.


Deposit Growth: The deposits of BFI’s as at Mid-September 2018 increased by 1.38% to NPR 2,875.80 billion, compared to NPR 2,836.65 billion in Mid-July 2018. The growth during the same period last year was 2.10%. The share of demand, saving and fixed deposits in total deposits stood at 7.9 percent, 34.2 percent and 45.7 percent respectively in mid-September 2018. Such shares were 8.3 percent, 35.6 percent and 43.1 percent respectively a year ago. And the share of institutional deposits in total deposit of BFIs stood at 44.7 percent in mid-September 2018. Such share was 43.7 percent a year ago.

Credit Growth: The credit disbursement of BFI’s as at Mid-September 2018 increased to NPR 2,497.28 billion by 3.07%, compared to NPR 2,422.78 billion in Mid-July 2018. The growth during the same period during last year was 1.91%. In the review period, private sector credit increased 2.0 percent from commercial banks, 2.7 percent from development banks and 0.5 percent from finance companies. On y-o-y basis, credit to the private sector from BFIs increased 22.4 percent in mid-September 2018. In the review period, term loan extended by BFIs increased 5.0 percent, overdraft increased 0.5 percent, trust receipt (import) loan increased 6.2 percent, demand and working capital loan increased 5.5 percent, real estate loan (including residential personal home loan) increased 2.2 percent and hire purchase loan increased 2.1 percent while margin nature loan decreased 0.9 percent.

Though the liquidity situation is at some ease as of now, if we compare the credit growth rate of 3.07% and deposit growth rate of 1.38%, then the liquidity problem is likely to reoccur again if the deposit growth couldn’t matchup with the credit demand and also if there is lag in the government expenditure.


In the review period, NRB mopped up NPR 85.35 billion through open market operations. Of which, NPR 79.65 billion was mopped up under deposit collection auction and NPR 5.70 billion through reverse repo auction.

On the other hand, NRB injected net liquidity of NPR 31.47 billion through the net purchase of USD 279.90 million from foreign exchange market. Net liquidity of NPR 52.70 billion was injected through the net purchase of USD 514.30 million in the corresponding period of the previous year.


Budget Performance

The budget surplus of the Government of Nepal (GoN) increased to NPR 55.93 billion in two months of 2018/19 from NPR 19.18 billion in the corresponding period of the previous year. Of the total revenue budget of NPR 945.6 billion, 12.60% has been outturned in the first two months of FY 2018/19. In contrast, only 5% of the total expenditure budget of NPR 1,315.2 billion has been attained in two months of current fiscal year.

Government Revenue and Expenditure

In comparison to two months of FY 2017/18, the government expenditure has decreased by 8.35% to NPR 66.33 billion.  On the other hand, the government revenue witnessed a growth of 34.28% compared to corresponding period of the last fiscal year. The government revenue for two months in this fiscal year stood at NPR 118.40 billion compared to NPR 88.18 billion in the two months of last fiscal year.


The country’s BOP position is already in deficit in the first two months of FY 2018/19 by NPR 25.45 billion, mainly due to huge deficit seen in current account by NPR 35.56 billion as a result of significant increase in imports. During the corresponding period in last year, BOP was at deficit by NPR 5.87 billion only, whereas the current account was at deficit by NPR 19.74 billion.

In the review period, Nepal received capital transfer amounting to Rs.2.80 billion and Foreign Direct Investment (FDI) inflows of Rs.1.23 billion. In the same period of the previous year, capital transfer and FDI inflows had amounted to Rs.1.84 billion and Rs.5.10 billion respectively.


The workers’ remittance growth rate is subject to change in terms of US Dollar and Nepalese Currency based on exchange rate of NPR with US 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 two months’ data of FY 2018/19 shows that worker’s remittance growth has witnessed an increment of 22.29% to reach $1,378.40 million compared to 5.21% growth in 2017/18.

Remittance in NPR terms

On the other hand, in NPR terms, the workers’ remittance increased by 33.45% to NPR 154.20 billion during two months in FY 2018/19 compared to a growth of 0.71% during the same period in FY 2017/18.

As per the data of Department of Foreign Employment, the number of Nepalese workers outbound for foreign employment decreased 41 percent in the review period. It had decreased 7.2 percent in the same period of the previous year. In the review period, the number of workers outbound to Malaysia shrank significantly.