Nepal’s economy has entered a phase of negative real interest rates for the first time in seven months, signaling growing pressure on the country’s economic outlook.
Data from Nepal Rastra Bank (NRB) shows that the average deposit interest rate offered by several commercial banks has dropped to around 2.93 percent. Meanwhile, the national inflation rate stands at 3.25 percent. As inflation now exceeds the average deposit rate by roughly 0.32 percent, savers are experiencing negative real returns, meaning the purchasing power of their savings is gradually declining.
Former NRB Executive Director Nara Bahadur Thapa described the situation as a typical indicator of an approaching economic downturn. He explained that when returns on savings are low while inflation remains relatively high, people are discouraged from saving and their purchasing power weakens further.
The downward trend in interest rates is expected to persist. For the period between mid-March and mid-April, commercial banks have again lowered their deposit rates, with individual fixed deposit rates falling to as low as 4.11 percent annually.
An analysis of interest rate announcements from 20 commercial banks shows that six banks reduced their rates for the upcoming month, while the remaining 14 kept them unchanged. On average, banks cut the interest rate on individual fixed deposits by 0.08 percentage points, bringing the average rate down to 4.49 percent from 4.75 percent in the previous month. Similarly, institutional fixed deposit rates declined slightly from 3.33 percent to 3.29 percent.
Among the banks, Nepal Bank Limited implemented the largest reduction, lowering its rate by 0.6 percentage points to reduce its cost of funds. Other banks that trimmed their rates include Standard Chartered Bank Nepal, Kumari Bank, Agriculture Development Bank, Prime Commercial Bank, and Global IME Bank.
Bankers say the steady decline in interest rates over the past year has been driven largely by weak credit demand, which has limited banks’ ability to expand lending and forced them to cut operating costs. According to NRB data, total deposits in the country’s banking system have climbed to Rs 7.744 trillion, while total outstanding loans amount to only Rs 5.844 trillion.
As a result, the average credit-to-deposit (CD) ratio of banks and financial institutions (BFIs) stands at 74.19 percent—well below the regulatory ceiling of 90 percent—indicating that the financial sector currently holds a large volume of unused, loanable funds.
