Falling Interest Rates in Nepal: A Hidden Catalyst for the Next NEPSE Rally?
With Nepal Rastra Bank signaling a gradual easing in monetary policy, investors are turning optimistic about the stock market’s next growth phase. But how exactly do falling interest rates shape NEPSE’s movement—and which sectors benefit most?
Introduction:
After months of tight liquidity and cautious investor sentiment, Nepal’s financial environment is showing early signs of change. The Nepal Rastra Bank (NRB) has gradually reduced policy rates and encouraged banks to increase credit flow into productive sectors. This shift could mark the beginning of a new era of growth for NEPSE as lower borrowing costs typically fuel investment and spending.
1. Understanding Interest Rates and Their Market Impact
Interest rates are the backbone of financial activity. When NRB sets lower policy rates, commercial banks follow by cutting lending and deposit rates. This makes loans cheaper and savings less attractive—encouraging individuals and businesses to borrow and invest instead.
For NEPSE, that’s a bullish signal: cheaper capital means companies can expand, and investors tend to shift money from deposits to equities.
2. Why Lower Rates Could Boost NEPSE
Higher Liquidity: As deposit rates fall, more cash flows into the market seeking better returns.
Improved Corporate Earnings: Companies with loans benefit from reduced interest expenses.
Valuation Expansion: Investors are willing to pay more for future growth when the discount rate falls.
These combined effects can lift the NEPSE index, particularly in interest-rate-sensitive sectors like banking, finance, and real estate.
3. Sector Winners and Losers
Banking Sector: Lower rates can initially compress margins, but the higher loan volume usually offsets it.
Hydropower: Easier project financing boosts new capacity additions.
Insurance & Investment Firms: Benefit from capital inflows and higher market participation.
Depositors: Lose the most as fixed deposit returns fall below inflation in some cases.
4. Global Parallels and Local Insights
Globally, rate cuts have historically triggered bull markets—from the U.S. post-2008 to India after 2020. In Nepal’s case, declining CD ratios and easing NRB policies suggest an improving liquidity position—creating a supportive backdrop for NEPSE’s next upswing.
5. Risks to Watch
If inflation remains high, NRB may hesitate to ease further.
A sudden credit surge could raise NPL (non-performing loan) risks.
Investor overconfidence might push valuations beyond fundamentals.
Conclusion:
Nepal’s falling interest rate environment could quietly be setting the stage for NEPSE’s next big rally. For long-term investors, this is the time to research undervalued sectors, focus on quality balance sheets, and prepare for gradual—but steady—market recovery.