KATHMANDU: Nepal Rastra Bank’s latest report on the current macroeconomic and financial situation, based on ten months’ data ending mid-May 2026, presents a generally positive outlook. Inflation remains under control at 5.04 percent, foreign exchange reserves stand at Rs. 3,704.55 billion (equivalent to 19.2 months of imports), and remittances have surged 41.2 percent.

The current account and balance of payments show healthy surpluses, though trade deficit persists. Government revenue and expenditure, monetary aggregates, and financial access indicators reflect steady progress amid global uncertainties.

What is the current inflation trend in Nepal?

Consumer Price Index (CPI) based inflation stood at 5.04 percent in mid-May 2026, up from 2.77 percent a year ago. Food and beverage inflation was 4.63 percent while non-food and services inflation reached 5.26 percent.

The average CPI inflation over the ten-month period remained low at 2.66 percent compared to 4.39 percent last year. In the food category, fruit prices rose 18.60 percent, ghee and oil 13.99 percent, and vegetables 5.40 percent.

Non-food items saw sharp increases in miscellaneous goods (19.90 percent) and transportation (15.30 percent). Urban inflation was higher at 5.29 percent than rural at 4.35 percent. Province-wise, Koshi recorded the highest at 5.64 percent and Bagmati the lowest at 4.55 percent. Wholesale Price Inflation stood at 5.96 percent.

Nepal’s inflation was higher than India’s 3.48 percent in April 2026. This moderate inflation environment supports household stability while highlighting the need for vigilant monetary policy to manage supply-side pressures from food items and transportation costs. Overall, the trends suggest controlled price levels that can encourage consumption and investment if sustained.

How strong are Nepal’s foreign exchange reserves?

Gross foreign exchange reserves reached Rs. 3,704.55 billion in mid-May 2026, equivalent to approximately USD 24.19 billion. This marks an increase of 38.3 percent from mid-July 2025. The reserves are sufficient to cover prospective merchandise and services imports for 19.2 months and merchandise imports alone for 22.6 months.

Reserves held by Nepal Rastra Bank increased 36.6 percent to Rs. 3,298.38 billion, while those with other banks and financial institutions rose 54.4 percent. The share of Indian currency in total reserves was 20.6 percent. The reserves-to-GDP ratio improved to 60.7 percent, reserves-to-imports to 159.7 percent, and reserves-to-M2 to 43.3 percent.

This strong reserve position provides a solid buffer against external shocks and supports macroeconomic stability. It enhances investor confidence, allows the central bank greater flexibility in exchange rate management, and strengthens Nepal’s ability to withstand potential global economic volatility or sudden import surges.

What is the status of remittances and current account?

Remittance inflows increased significantly by 41.2 percent to Rs. 1,916.90 billion in the ten months of fiscal year 2025/26. In USD terms, they grew 33.0 percent to USD 13.26 billion. In the single month of mid-April to mid-May, inflows reached Rs. 257.49 billion.

The number of workers taking first-time foreign employment approval was 335,510 while renewals stood at 326,364. The current account recorded a surplus of Rs. 729.28 billion (USD 5.05 billion), much higher than Rs. 272.53 billion last year.

Net secondary income (net transfers) reached Rs. 2,091.86 billion. Balance of Payments surplus stood at Rs. 863.56 billion (USD 5.98 billion). These inflows have strengthened external sector stability and supported the rupee.

The strong remittance growth reflects continued reliance on foreign employment and provides crucial foreign currency support that bolsters reserves and finances imports. It also indicates resilience in labor migration despite global challenges.

How is Nepal’s foreign trade performing? 

Merchandise exports grew 14.2 percent to Rs. 248.96 billion while imports rose 14.8 percent to Rs. 1,692.64 billion. The trade deficit widened 14.9 percent to Rs. 1,443.68 billion. Exports to India increased 16.1 percent and to other countries 9.5 percent, but declined to China by 41.7 percent. Key export gainers included soybean oil, cardamom, and noodles.

Imports from India, China, and others all increased. The export-import ratio slightly declined to 14.7 percent. Export price index rose 3.1 percent while import price index surged 24.0 percent, leading to a 16.9 percent deterioration in terms of trade. Travel income declined marginally while education-related payments remained high.

This performance highlights the persistent challenge of a wide trade gap but also shows some export momentum in select commodities. Efforts to diversify exports and reduce import dependence remain critical for long-term balance.

What are the government’s fiscal highlights?

The Nepal Government’s total expenditure reached Rs. 1,173.52 billion during the ten months. Recurrent expenditure was Rs. 814.66 billion, capital expenditure Rs. 113.85 billion, and financial expenditure Rs. 245.02 billion. Total revenue mobilization stood at Rs. 988.55 billion, with tax revenue at Rs. 893.56 billion and non-tax revenue at Rs. 94.99 billion.

Cash balance at various government accounts with NRB was Rs. 416.36 billion. Provincial governments recorded expenditure of Rs. 88.53 billion and resource mobilization of Rs. 163.74 billion. The fiscal position shows moderate spending growth with improving revenue collection, though capital spending remains a focus area for infrastructure development.

This data indicates prudent fiscal management that supports essential services while maintaining a reasonable cash balance for future commitments. Continued emphasis on enhancing capital expenditure execution will be vital for driving economic growth and job creation.

How has broad money and credit grown?

Broad money (M2) increased 9.2 percent during the review period and 15.2 percent on a year-on-year basis. Deposits at banks and financial institutions grew 9.4 percent to Rs. 7,949.28 billion, with year-on-year growth of 16.0 percent. Private sector credit expanded 5.7 percent to Rs. 5,809.71 billion (6.7 percent y-o-y).

Net foreign assets rose substantially due to the balance of payments surplus. The share of saving deposits increased notably to 46.2 percent while fixed deposits declined to 38.2 percent. Domestic credit was almost stable. These trends indicate healthy liquidity and moderate credit expansion supporting economic activities.

The growth in deposits reflects public confidence in the banking system, while controlled credit growth helps avoid overheating. This balanced monetary expansion supports productive sectors without excessive inflationary pressure.

What are the key interest rate movements?

The weighted average interbank rate stood at 2.75 percent while the 91-day Treasury bill rate was 2.63 percent in mid-May 2026, both lower than the previous year. Weighted average deposit rate of commercial banks declined to 3.35 percent and lending rate to 6.73 percent.

Base rates also decreased across commercial banks, development banks, and finance companies. These lower rates reflect improved liquidity conditions resulting from the strong balance of payments surplus and Nepal Rastra Bank’s effective liquidity management measures, including absorption and injection operations.

The decline in lending rates should encourage borrowing for productive sectors such as industry, agriculture, and services, thereby supporting economic recovery and investment. For savers, the lower deposit rates may reduce returns on savings accounts, prompting a shift towards other investment options.

Overall, the easing interest rate environment signals a stable monetary policy stance aimed at fostering growth while maintaining control over inflation. This trend is positive for businesses seeking affordable credit and contributes to a more conducive atmosphere for private sector expansion in the remaining months of the fiscal year.

How accessible is financial services in Nepal?

As of mid-May 2026, 106 banks and financial institutions (BFIs) were operating with 11,359 branches. Deposit accounts in class A, B, and C institutions reached 62.72 million while loan accounts stood at 2.04 million. The core capital to risk-weighted assets ratio was 9.76 percent and total capital ratio 12.70 percent. Non-performing loans (NPL) ratio was 5.60 percent as of mid-April 2026. These figures show expanding financial inclusion with relatively sound health of the banking sector.

The slight reduction in the number of BFIs and branches indicates ongoing consolidation and efficiency improvements in the industry. High deposit account numbers demonstrate widespread banking penetration even in remote areas, supported by microfinance institutions. Strong capital adequacy ratios ensure banks can absorb potential shocks, while the manageable NPL level suggests prudent lending practices.

This improved financial access plays a key role in supporting small businesses, agriculture, and household needs, contributing to inclusive economic development across provinces. Continued digital initiatives and branch expansion in underserved regions will further enhance outreach and deepen financial literacy among the population.

What is the performance in the capital market?

The NEPSE index stood at 2,730.18 points in mid-May 2026, up from 2,620.27 the previous year. Market capitalization reached Rs. 4,656.45 billion, equivalent to 70.55 percent of GDP. A total of 294 companies were listed, up from 271 previously. Securities worth Rs. 136.30 billion were listed during the period, including ordinary shares, bonus shares, right shares, and mutual funds.

The market shows moderate growth and increasing depth, reflecting investor confidence in the economy. BFIs and insurance companies continued to dominate market capitalization at 50.7 percent, followed by hydropower at 17.5 percent. The rise in listed companies and securities issuance indicates growing interest in equity financing.

This performance provides an alternative funding source for businesses and opportunities for investors seeking returns beyond traditional deposits. Sustained positive momentum in the capital market can channel domestic savings into productive investments and support long-term economic development.

How are electronic transactions growing?

Electronic payments continue to expand rapidly. From mid-March to mid-May 2026, debit card users conducted 10.65 million transactions amounting to Rs. 82.93 billion. Mobile banking saw 78.89 million transactions worth Rs. 612.39 billion, and QR code payments recorded 59.26 million transactions worth Rs. 162.58 billion. This growth indicates successful digital financial transformation and greater convenience for citizens.

The surge in mobile and QR transactions highlights increasing adoption of cashless payments, driven by widespread smartphone penetration and supportive regulatory frameworks from Nepal Rastra Bank. These developments reduce transaction costs, enhance transparency, and improve efficiency in daily financial activities for individuals and businesses alike.

The strong growth in electronic transactions also supports formalization of the economy and aids in better tracking of financial flows. As digital infrastructure improves, further expansion is expected, which will contribute to greater financial inclusion and modernization of Nepal’s payment ecosystem.

What is the overall external sector position?

The external sector remains strong with current account surplus, high remittance inflows, and robust foreign exchange reserves. Net services income showed a smaller deficit. Foreign direct investment inflows (equity) increased to Rs. 16.96 billion. These developments have helped maintain exchange rate stability despite 10.4 percent depreciation of the Nepali rupee against the US dollar.

The healthy external position provides a cushion against global uncertainties such as fluctuating commodity prices and geopolitical tensions. It also allows policymakers more room to implement growth-oriented measures.

The improvement in net capital transfers and FDI signals growing attractiveness for foreign investors. Continued focus on export diversification, tourism revival, and attracting more FDI will further strengthen this position and reduce vulnerability to external shocks.

What do these indicators mean for Nepal’s economy?

The ten-month data of fiscal year 2025/26 shows a resilient Nepali economy with strong external buffers, controlled inflation, rising remittances, and improving financial inclusion. Challenges remain in containing the trade deficit, boosting capital expenditure, and managing inflation pressures from global commodity prices. The healthy reserves and BOP surplus provide policy space for the government and NRB to support growth.

Sustained focus on export promotion, productive investment, and digital economy will be key for long-term stability and prosperity. Overall, the indicators point towards a stable macroeconomic foundation that can facilitate higher growth if structural reforms are accelerated.

Coordination between monetary and fiscal policies will be essential to translate these positive trends into tangible benefits for employment, poverty reduction, and sustainable development across all provinces.