Banks and financial institutions in Nepal have further reduced interest rates for the month of Ashad, with most commercial banks publishing lower deposit rates on Sunday. Under normal financial market conditions, lower interest rates are expected to encourage investment in the stock market. However, recent trends in Nepal suggest that this traditional relationship has weakened significantly.
Historically, the months of Baisakh, Jestha, and Ashad are considered active periods for Nepal’s stock market as listed companies approach fiscal year-end and investors anticipate earnings growth and dividend announcements. This year, however, market sentiment remains subdued. Despite the formation of a stable government and expectations of economic improvement, the stock market has failed to gain sustained momentum, with frequent corrections reducing investor confidence.
Although the government has already announced the budget for the upcoming fiscal year, many investors believe the policy measures have not been sufficient to restore market optimism. Concerns have been raised that higher tax burdens and policy uncertainty may discourage new investment and keep existing investors cautious. As a result, many market participants remain in a wait-and-watch position.
At the same time, Nepal Rastra Bank data indicates strong foreign exchange reserves and a healthy external sector, yet domestic financial activity remains slow. Excess liquidity continues to build up in banks while lending demand stays weak. Despite deposit rates falling to historically low levels, there has been limited movement toward the stock market.
One of the major concerns in the current environment is that average commercial bank deposit rates have reportedly fallen to around 3.26%, while inflation remains above 5%. This means savers may experience negative real returns after adjusting for inflation. Normally, such conditions could make equities more attractive, but uncertainty and weak market confidence have prevented that shift. Investors argue that beyond theoretical reforms, stronger structural and investment-friendly policies are needed to rebuild confidence and stimulate market participation.
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