KATHMANDU: Nepal’s external sector remained strong in the first two months of fiscal year 2026/27, with record-high foreign exchange reserves and substantial surpluses in the current account and balance of payments. However, inflation and the trade deficit continued to rise, according to Nepal Rastra Bank (NRB).
The central bank’s latest report on the country’s current economic and financial situation showed that year-on-year consumer price inflation reached 6.34 percent by mid-September, compared to 1.87 percent in the same period last year.
Food and beverage inflation stood at 7.54 percent, while non-food and services inflation reached 5.69 percent.
Inflationary pressure rises
Among food items, prices of ghee and oil rose by 16.68 percent, fruits by 15.99 percent, sugar and sugar products by 12.14 percent, fish and meat by 7.34 percent, vegetables by 7.07 percent, and spices by 6.71 percent.
In the non-food category, the price index for transportation increased by 12.77 percent, alcoholic beverages by 8.83 percent, clothing and footwear by 7.06 percent, furnishings and household equipment by 6.01 percent, and tobacco products by 5.45 percent.
Inflation stood at 6.78 percent in rural areas and 6.19 percent in urban areas. Among provinces, Madhesh recorded the highest inflation at 7.48 percent, while Sudurpaschim had the lowest at 5.16 percent.
Inflation stood at 5.28 percent in the Kathmandu Valley, 6.89 percent in the Tarai, 6.41 percent in the hills and 5.69 percent in the mountains. India’s consumer inflation during the review period stood at 4.82 percent, while Nepal’s year-on-year wholesale inflation reached 8.08 percent.
Exports rise, but trade deficit widens
Nepal’s total merchandise exports increased by 61.9 percent to Rs 36.59 billion during the review period. Exports to India, China and other countries rose by 70.6 percent, 137.6 percent and 22.7 percent, respectively.
Exports of soybean oil, polyester yarn, palm oil, zinc sheets and particle boards increased, while exports of Ayurvedic medicines, processed leather, pulses, Nepali paper and medicinal herbs declined.
Meanwhile, total merchandise imports rose by 31.6 percent to Rs 401.52 billion. Imports from India, China and other countries increased by 27.4 percent, 17.2 percent and 56.6 percent, respectively.
Imports of petroleum products, chemical fertilisers, crude soybean oil, edible oils, and vehicles and spare parts increased. Imports of gold, paddy and rice, aircraft parts, polyethylene granules and medical supplies declined.
The sharp rise in imports pushed the merchandise trade deficit up by 26 percent to Rs 324.93 billion. The export-import ratio stood at 19.1 percent.
Consumer goods accounted for 71.1 percent of total exports, intermediate goods for 28.8 percent and capital goods for 0.1 percent. On the import side, intermediate goods accounted for 51.9 percent, consumer goods for 39.4 percent and capital goods for 8.7 percent. Nepal’s terms of trade declined by 7.9 percent, according to the report.
Remittance inflows increase, foreign employment approvals decline
Remittance inflows increased by 23.9 percent to Rs 436.36 billion during the first two months of the fiscal year. Inflows in mid-August to mid-September alone amounted to Rs 221.31 billion.
In US dollar terms, remittance inflows rose by 13.5 percent to $2.85 billion. Net secondary income reached Rs 469.44 billion.
During the period, 78,320 Nepalis received first-time final labour approvals for foreign employment, while 52,163 obtained renewed labour approvals.
The services account recorded a net deficit of Rs 22.04 billion. Travel income increased by 28.6 percent to Rs 14.94 billion, while travel expenditure declined by 13.1 percent to Rs 41.10 billion. Of the total travel expenditure, Rs 29.55 billion was spent on education.
Current account surplus and foreign exchange reserves grow
Nepal recorded a current account surplus of Rs 169.04 billion, equivalent to $1.11 billion, during the review period.
Net capital transfers stood at Rs 1.53 billion, while foreign direct investment in equity increased by 134 percent to Rs 2.98 billion.
The balance of payments recorded a surplus of Rs 187.68 billion, equivalent to $1.23 billion, according to NRB.
The country’s total foreign exchange reserves increased by 4.3 percent from Rs 3,879.67 billion at the end of mid-July to Rs 4,065.78 billion by mid-September. In US dollar terms, reserves rose by 4.6 percent to $26.48 billion.
Of the total reserves, Rs 3,610.76 billion was held by Nepal Rastra Bank and Rs 455.01 billion by banks and financial institutions. The Indian currency accounted for 21.3 percent of total reserves.
The existing reserves are sufficient to cover 20.9 months of merchandise imports and 17.8 months of merchandise and services imports.
Global prices and government finances
During the review period, international crude oil prices rose by 83.4 percent to $127.43 per barrel, while gold prices increased by 15.4 percent to $4,263.55 per ounce.
Compared with mid-July, the Nepali rupee appreciated by 0.3 percent against the US dollar by mid-September, with the buying rate standing at Rs 153.24 per dollar.
On the government finance front, total government expenditure reached Rs 199.04 billion. This included Rs 122.04 billion in recurrent expenditure, Rs 7.66 billion in capital expenditure and Rs 70.14 billion in financial management expenditure.
Total government revenue collection stood at Rs 183.21 billion, comprising Rs 172.43 billion in tax revenue and Rs 10.78 billion in non-tax revenue. Indirect taxes accounted for 75.3 percent of total revenue, while direct taxes made up 18.2 percent.
The government’s cash balance at NRB stood at Rs 384.69 billion. Provincial governments recorded total expenditure of Rs 4.48 billion and resource mobilisation of Rs 24.54 billion.
Deposits and private sector credit expand
Broad money supply increased by 1.7 percent during the review period and by 14.9 percent year-on-year.
Deposits at banks and financial institutions rose by 0.9 percent, or Rs 72.80 billion, to Rs 8,349.72 billion. Credit to the private sector increased by 1.6 percent, or Rs 93.52 billion, to Rs 5,950.58 billion.
Current deposits accounted for 7.5 percent of total deposits, savings deposits for 48 percent and fixed deposits for 34.7 percent.
The weighted average interest rate on 91-day Treasury bills stood at 1.35 percent, while the interbank rate was 2.75 percent.
The average base rate stood at 4.70 percent for commercial banks, 6.15 percen
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