Nepal Rastra Bank Unveils Comprehensive FY 2025/26 Report: Economic Resilience and Key Indicators for Investors

The Nepal Rastra Bank (NRB), the nation's central bank, has released its annual macroeconomic and financial situation report for the fiscal year 2025/26, offering a detailed snapshot of Nepal's economic performance and stability. The report highlights a period characterized by robust external sector performance, moderate inflation, and evolving dynamics within the financial and capital markets. For investors, understanding these key indicators is crucial for navigating the opportunities and challenges within the Nepali economy.

Overall, the NRB estimates that year-on-year inflation remained at a manageable 3.85 percent. The nation's gross foreign exchange reserves demonstrated significant strength, reaching an impressive Rs. 3,897.67 billion, equivalent to USD 25.31 billion. This substantial reserve position provides a strong buffer against external shocks and supports import capacity. Trade figures indicated growth, with total imports increasing by 16.2 percent and exports by 13.8 percent. However, the NEPSE index experienced a decline, standing at 2590.29 in mid-July 2026, down from 2794.79 in mid-July 2025, reflecting a cautious sentiment in the capital market.

Inflationary pressures, while moderate on an annual average, showed some upward movement on a year-on-year basis. The consumer price inflation stood at 5.14 percent in mid-July 2026, a notable increase from 2.20 percent recorded in the same period a year prior. Despite this, the annual average consumer price inflation for FY 2025/26 remained at 3.08 percent, a decrease from 4.06 percent in the previous fiscal year, suggesting overall price stability throughout the year. Wholesale price inflation also saw an increase, reaching 4.27 percent annually and 6.67 percent year-on-year by mid-July 2026, indicating rising input costs for businesses. These figures are vital for investors assessing the profitability and operational costs of various sectors.

Nepal's external sector proved to be a significant pillar of strength. Remittance inflows, a cornerstone of the Nepali economy, surged by an impressive 37.1 percent to Rs. 2,363.13 billion in FY 2025/26 (USD 16.19 billion). This robust growth in remittances not only supports household incomes but also directly contributes to the nation's foreign exchange reserves. The gross foreign exchange reserves themselves witnessed a substantial 45.6 percent increase, reaching Rs. 3,897.67 billion (USD 25.31 billion). This level of reserves is adequate to cover approximately 23 months of merchandise imports and 19.6 months of merchandise and services imports, providing unparalleled economic stability and bolstering investor confidence in the country's ability to manage its external accounts. The current account recorded a significant surplus of Rs. 923.56 billion, and the overall balance of payments remained in a healthy surplus of Rs. 1,027.04 billion, further underscoring the strength of the external sector.

The trade balance, however, presented a mixed picture. Merchandise exports grew by 13.8 percent to Rs. 315.29 billion, driven primarily by increased exports to India (15.1 percent) and other countries (10.1 percent). Conversely, exports to China experienced a decline of 28 percent. Merchandise imports outpaced exports, rising by 16.2 percent to Rs. 2,096.38 billion, with increases across all major trading partners. Consequently, the total trade deficit expanded by 16.6 percent to Rs. 1,781.09 billion. The export-import ratio slightly decreased to 15.0 percent, indicating a continued reliance on imports.

On the fiscal front, government expenditure reached Rs. 1,582.17 billion, a 4.6 percent increase. While recurrent expenditure saw a 9.1 percent rise, capital expenditure declined by 14.8 percent to Rs. 190.84 billion. This decline in capital expenditure could be a point of concern for long-term economic growth and infrastructure development. Government revenue increased by 5.3 percent to Rs. 1,241.32 billion. Public debt continued its upward trend, reaching Rs. 2,974.90 billion, or 45.07 percent of GDP, comprising both external and domestic components. Investors should monitor the government's fiscal management and its impact on future economic policies.

The monetary and financial sector exhibited notable trends. Broad money supply increased by 13.4 percent, while deposits at banks and financial institutions (BFIs) grew by 13.9 percent. Private-sector credit, however, expanded at a slower pace of 6.5 percent, indicating a more cautious lending environment or subdued demand from certain sectors. Interest rates across various categories generally declined, with the weighted average interbank rate falling to 2.75 percent and the average lending rate of commercial banks decreasing to 6.55 percent. This reduction in borrowing costs could stimulate economic activity. The banking sector maintained reasonable health, with an average non-performing loan (NPL) ratio of 5.66 percent and adequate capital adequacy ratios, suggesting resilience despite the economic shifts.

The NEPSE market capitalization declined to Rs. 4,463.55 billion from Rs. 4,656.99 billion a year earlier, mirroring the fall in the NEPSE index. This indicates a contraction in overall market value. However, the number of companies listed on NEPSE increased to 302 from 272, suggesting continued interest in public listings despite the broader market downturn. This divergence presents both challenges and opportunities for equity investors.

Other economic indicators included a modest 0.95 percent increase in tourist arrivals, reaching over 1.15 million, signaling a continued recovery in the tourism sector. International commodity prices also saw increases, with Brent crude oil rising by 16.6 percent to USD 81.23 per barrel and gold prices soaring by 20.2 percent to USD 3,993.55 per ounce. These global price movements have implications for Nepal's import bill and inflation.

In conclusion, the NRB's FY 2025/26 report paints a picture of an economy demonstrating resilience, particularly through its strong external sector driven by robust remittance inflows and substantial foreign exchange reserves. While inflation remains moderate on an annual average, and interest rates have declined, challenges persist in the form of a widening trade deficit, a decline in capital expenditure, and a subdued performance in the capital market. Investors should carefully consider these multifaceted trends when making informed decisions in the dynamic Nepali economic landscape.