Inflation down, reserves up, But Nepal’s market remains sluggish

March 11, 2025, 11:58:38 AM |

KATHMANDU: Nepal’s economy is flashing mixed signals seven months into fiscal year 2081/82 (2024/25), with robust macroeconomic gains overshadowed by persistent market sluggishness, according to data released Monday by the Nepal Rastra Bank (NRB). While inflation cools, reserves swell, and exports soar, weak import growth and tepid credit expansion reveal a domestic demand stuck in neutral—raising doubts about the recovery’s depth.

The NRB reported consumer inflation at 4.16% for the period, a drop from 5.01% last year, with both food and non-food sectors in check. But spikes in ghee and oil (12.80%) and pulses (9.06%) hint at uneven price pressures. Remittances, a lifeline for Nepal, hit NPR 900 billion ($6.7 billion USD), up 7.3% from last year’s 18.8% surge, though growth in dollar terms slowed to 5.3% ($6.65 billion) from 16.4%. Foreign exchange reserves climbed 16.1% to NPR 2.369 trillion ($17.05 billion USD), enough to cover 17.2 months of goods imports—a buffer that outshines many peers.

Exports delivered a standout performance, jumping 46.5% to NPR 127.20 billion ($950 million USD), driven by soybean oil. Yet, imports grew by just 10%, propped up by raw material inflows rather than broad demand—a sign the market remains listless. “Imports tell the real story,” said a Kathmandu-based economist. “Domestic consumption isn’t picking up.”

Lower interest rates—commercial banks at 6.46%, down from 9.06% a year ago—haven’t sparked the expected borrowing boom. Private sector credit rose by NPR 283.46 billion ($2.12 billion USD), or 5.6%, outpacing last year’s 4.1% but falling short of robust growth. Deposits edged up 3.8% to NPR 245.34 billion ($1.83 billion USD), lagging behind last year’s 7.0%. Broad money supply, a key liquidity gauge, grew by a scant 4.4%, well below targets and last year’s 7.0%.

The disconnect has analysts puzzled. “Strong reserves and low inflation should fuel optimism, but the market’s not responding,” said an NRB official, speaking anonymously. The bank attributes the export spike to niche sectors like soybean oil, masking broader weakness. Imports, a proxy for demand, suggest businesses and consumers are holding back—possibly wary of global uncertainty or local liquidity constraints.

Social media reflects the unease. “Exports up 46%, but my shop’s still empty,” one X user posted. Another wrote, “NRB’s numbers look good on paper—where’s the real impact?” Economists point to structural hurdles: high logistics costs, power woes, and a reliance on remittances over investment. The 5.6% credit growth, while improved, barely dents Nepal’s $40 billion GDP, signaling banks’ caution despite cheaper loans.

The NRB insists the fundamentals are solid—reserves at a five-year high, inflation tamed—but the data offers a reality check. With money supply and deposits growing slower than last year, liquidity isn’t trickling down. Nepal’s economy, buoyed by diaspora cash and export niches, risks stalling if domestic demand doesn’t catch up.

Fiscal Nepal |

Tuesday March 11, 2025, 11:58:38 AM |