Economic Landscape of Nepal in Mid-September 2025

Nepal’s macroeconomic landscape as of mid-September 2025 reflects a notable cooling of inflationary pressures, a strong rebound in exports, and record remittance inflows, all contributing to a robust external position. According to the latest data from Nepal Rastra Bank (NRB), the country’s economy is experiencing mixed dynamics, moderating domestic demand and improving external balances, supported by a favorable trade performance and growing foreign exchange reserves.

Inflation Eases to Multi-Year Low

Consumer price inflation (CPI) in Nepal eased sharply to 1.87 percent year-on-year in mid-September 2025, a significant decline from 3.86 percent in the same period a year earlier. This slowdown marks one of the lowest inflation readings in recent years, largely driven by a substantial drop in food prices.

Food and beverage inflation turned negative, registering a 1.34 percent decline, compared to a 5.06 percent increase last year. On the other hand, non-food and service inflation rose moderately by 3.70 percent, up from 3.19 percent a year ago.

Within the food category, ghee and oil prices rose 11.09 percent, while non-alcoholic drinks and milk products & eggs climbed 3.97 and 2.66 percent, respectively. However, steep declines in vegetable prices (–12.74 percent) and spices (–6.31 percent) drove the overall moderation.

The non-food segment reflected mixed movements: miscellaneous goods and services jumped 11.77 percent, education 7.67 percent, and clothing and footwear 6.29 percent, while insurance and financial services saw a slight decline of 0.22 percent.

Geographically, urban inflation stood at 1.91 percent, slightly higher than 1.73 percent in rural areas. Across provinces, inflation was highest in Koshi Province (2.99 percent) and lowest in Sudurpashchim (0.88 percent). Among major regions, the Mountain region recorded 2.51 percent inflation, followed by Kathmandu Valley (2.21 percent), while the Hill and Terai regions recorded below 2 percent.

Wholesale price inflation (WPI) also eased to 2.10 percent from 2.75 percent a year ago. The wholesale prices of consumption goods increased 4.21 percent, while intermediate goods rose 0.83 percent and capital goods 2.35 percent.

In regional comparison, Nepal’s inflation remained slightly above India’s 1.54 percent, indicating similar price trends influenced by stable food and fuel prices across South Asia.

External Sector Strengthens Amid Export Boom

Nepal’s external sector showed remarkable resilience, supported by strong merchandise exports, surging remittances, and a growing current account surplus.

During the first two months of FY 2025/26, exports surged by 88.6 percent to Rs.47.32 billion, reversing last year’s 5.1 percent decline. Exports to India jumped 139.9 percent, while shipments to other countries rose 0.4 percent. However, exports to China plunged 58.5 percent, reflecting ongoing logistical and market access challenges.

Products such as soybean oil, palm oil, jute goods, cardamom, and noodles led the export growth, while zinc sheets, tea, woolen carpets, and particle boards saw declines.

Imports also expanded by 16.2 percent to Rs.305.16 billion, driven by higher purchases of crude soybean oil, fertilizers, transport equipment, and telecom parts. The overall trade deficit widened by 8.6 percent to Rs.257.84 billion, yet the export-import ratio improved to 15.5 percent from 9.6 percent last year, indicating a gradual rebalancing of trade composition.

Under the Broad Economic Categories classification, final consumption goods accounted for 69.3 percent of exports and 36.8 percent of imports, underscoring Nepal’s dependence on intermediate and capital goods for production and development.

Remittance Inflows Hit Record Levels

Remittances continued to serve as a lifeline for Nepal’s economy, with inflows rising 33.1 percent to Rs.352.08 billion during the first two months of FY 2025/26. In US dollar terms, this translates to 2.52 billion, marking a 27.6 percent increase.

This growth reflects both the rising number of migrant workers and improved formal channel transfers. The number of Nepalis obtaining new approvals for foreign employment reached 90,198, while 45,884 renewed their work permits.

As a result, net secondary income reached Rs.384.88 billion, up from Rs.287.76 billion a year ago.

Current Account and BOP Remain in Surplus

Bolstered by remittance and export earnings, the current account surplus widened to Rs.130.69 billion, more than double last year’s Rs.54.41 billion. In US dollar terms, the surplus reached 934.7 million.

Similarly, the balance of payments (BOP) recorded a surplus of Rs.153.68 billion, compared to Rs.101.77 billion a year earlier. Despite a decline in foreign direct investment inflows (down to Rs.1.27 billion from Rs.2.71 billion), the overall external stability improved.

Foreign Exchange Reserves Strengthen

Nepal’s gross foreign exchange reserves increased 7.6 percent to Rs.2881.35 billion, equivalent to USD 20.41 billion. The reserves held by NRB rose to Rs.2582.38 billion, while those of banks and financial institutions increased 13.7 percent.

At this level, Nepal’s reserves are adequate to cover 19.7 months of merchandise imports and 16 months of goods and services imports, far exceeding international adequacy standards.

The share of Indian currency in total reserves stood at 22.5 percent, reflecting Nepal’s close trade and monetary link with India.

Oil Prices Decline, Gold Prices Soar

Globally, crude oil prices fell 5.8 percent to USD 69.69 per barrel, providing some relief to Nepal’s import bill. Conversely, gold prices surged by 43 percent to USD 3695.40 per ounce, reflecting global uncertainty and higher investment demand in precious metals.

Meanwhile, the Nepalese rupee depreciated 2.7 percent against the US dollar during the review period, with the exchange rate reaching Rs.140.84 per dollar.

Fiscal Position and Public Spending

Government expenditure totaled Rs.180.17 billion in the first two months of FY 2025/26, with recurrent spending accounting for Rs.114.19 billion and capital expenditure a modest Rs.6.35 billion.

Revenue mobilization reached Rs.157.53 billion, of which Rs.150.40 billion came from tax revenues. The government’s cash balance stood at Rs.255.61 billion, nearly doubling from mid-July, reflecting slower spending relative to receipts.

At the provincial level, total expenditure stood at Rs.4.12 billion, while resource mobilization reached Rs.24.22 billion, mainly through central transfers and local revenue collection.

Monetary and Financial Developments

Broad money (M2) expanded marginally by 0.3 percent, while net foreign assets rose sharply by Rs.153.68 billion. Credit to the private sector increased 0.9 percent, and on an annual basis, 7.8 percent growth was recorded.

Deposits at banks and financial institutions (BFIs) grew by Rs.32.86 billion, reaching Rs.7,296.74 billion, supported by a 12.5 percent year-on-year expansion. Institutional deposits comprised 35.2 percent of the total.

Interest rates trended downward: the average base rate of commercial banks dropped to 5.72 percent from 7.49 percent a year ago, while the average lending rate fell to 7.66 percent.

Capital Market Gains Momentum

Nepal’s stock market remained buoyant, with the NEPSE index climbing to 2672.25 from 2580.76 a year earlier. Market capitalization expanded to Rs.4467.30 billion, equivalent to 73.15 percent of GDP.

The number of listed companies reached 276, with banks, insurers, and hydropower firms dominating the bourse. Securities worth Rs.17 billion were newly listed during the two-month period, while the Securities Board of Nepal approved additional issuances worth Rs.10.95 billion.

Outlook: Stability with Emerging Challenges

Nepal’s economy, as of mid-September 2025, appears on a path of relative stability, characterized by low inflation, strong external reserves, and record remittance inflows. However, sluggish capital spending, declining FDI, and moderate private sector credit growth signal the need for stronger domestic investment momentum.

While easing inflation provides room for monetary flexibility, sustaining the external gains will depend on export diversification, productivity enhancement, and effective fiscal execution in the months ahead.