In recent months, the base rates of banks in Nepal have become more volatile than ever, requiring constant adjustment almost every other month. It, in turn, has disrupted interest rates, affecting how people borrow, save, and plan their finances.
Although those with regular savings accounts may not even notice much change, as the interest rate on such accounts has been hovering around a measly 3% for the past couple of months, individuals with active loan’s EMI payments or relying on deposit returns have been at the frontline, feeling the brunt of these shifts.
As these fluctuations continue to influence your financial planning and all, it’s important to understand how they affect your loans and savings. So, without any further ado, let’s find out what causes interest fluctuations in Nepal, how they affect you, and tips to stay ahead of the curb.
Perhaps due to limited access to financial education in Nepal, a large portion of the public using banking services, especially bank loans, remain unaware of why their monthly payments keep fluctuating.
Most don’t even question it when the interest rate takes a dip, but when rates go up, the blame often directly falls on the banks as if banks were plotting a conspiracy to try to rip off the general public. But in reality, interest rate fluctuations don’t happen just on the whims of banks; they are the results of various economic factors.
Now, whether you are a borrower trying to manage your monthly payments or a saver looking for better returns on your hard-earned money, keeping up with why interest rates rise or fall wouldn’t be just good financial knowledge but a survival skill. Because when rates shift, so do your financial plans.
Inflation is one of the major causes that affect interest rates as central banks like Nepal Rastra Bank (NRB) amend new rates in accordance to control rising or dipping inflation.
For instance, when inflation increases, NRB increases interest rates to slow down spending and borrowing—making loans more expensive but encouraging savings. On the other hand, when inflation dips, NRB directs banks to lower interest rates to boost economic activity by making borrowing cheaper.
Nepal Rastra Bank annually releases a Monetary Policy typically around the beginning of the fiscal year (before Shrawan). Depending upon the need, it also releases quarterly and mid-term reviews throughout the year to stimulate the economy when needed or cool it down when inflation or liquidity gets out of hand.
In the Monetary Policy, NRB directs banks to adjust their financial parameters like Base Rate (BR), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo and Reverse Repo Rates, and Credit Growth Ceilings. Since interest rates and these factors are interrelated, whenever banks make adjustments as per the Monetary Policy, interest rates automatically fluctuate.
Nepal may be small on the map, but it’s firmly plugged into the global economy. International financial shifts—especially decisions made by institutions like the U.S. Federal Reserve—have a direct impact here.
When the Fed raises its rates, the cost of borrowing rises globally, making loans more expensive even in Nepal. These global trends eventually trickle down to influence everything from business investments to the interest on your personal loans and savings.
Whenever there is a sudden spike in the demand for money in the market, interest rates often go up. Meanwhile, a drop in credit demand leads to reduced interest rates. For instance, if there is more demand for bank loans, banks are more likely to increase their interest rates. On the other hand, whenever banks notice a lack of enough demand for loans, they reduce interest to encourage borrowing.
Likewise, the supply of credit also greatly influences interest rates. Banks dial down their interest rates when there is a high supply of credit, meaning they have plenty of money to lend to businesses and individuals.
However, when banks can’t, won’t, or are being extra strict about who they lend to, meaning they have a low credit supply, they discourage lending to control risk by hiking the interest rates.
In recent times, you might have noticed the price of US Dollars has been constantly hovering over NRP. 135. This means the value of the USD has increased while Nepali rupees have weakened, making imports more expensive and leading to inflation. In response, the NRB can hike the interest rates to stabilize our currency. So, every little to big change in foreign exchange rates affects the interest rates.
Now that we have a clear picture of why interest rates fluctuate, let’s break down how these changes actually impact you—whether you’re paying off a loan, saving for a rainy day, or locking in a fixed deposit for a long-term return.
.png)
Interest rate fluctuations directly affect loan repayments, especially if you're on a floating or variable interest loan. This is because banks typically set floating or variable interest on loans as BR + Premium %. When the base rate shifts—whether it climbs or dips—the interest rate on your loan mirrors that change, causing your Equated Monthly Installment (EMI) to act the same way.
So, whenever the BR increases, your EMI payment also increases, and when the BR dips, so do the payments, despite the principal loan amount remaining the same. Now, if you'd like to calculate how even a small 0.5% change in the interest rate can affect your payment, you can use our EMI calculator.
Having said that, if you have a fixed interest loan, any interest fluctuations will not affect your loan repayments, making it an ideal option for those who want predictable, stable monthly payments.
Nepali banks typically do not update interest rates on savings accounts as much as on loans. In addition, in recent months, banks have been offering a measly interest rate of 3% to 4% on regular accounts. Regardless, every fluctuation indeed gets reflected on the interest rates of savings accounts as well.
When interest rates rise, some banks may slightly improve savings rates, but changes are slow and barely noticeable. Whereas when rates drop, savings rates either stay flat or dip much lower, making your money grow even slower than before.
However, some banks offer premium or special savings accounts that provide higher returns, allowing your account to grow a bit faster. Check out our deposit comparison tool to find the best savings accounts with the highest interest returns.
Interest rate fluctuations are absolutely normal phenomena that happen in financial scenarios, but their impact on your loans and savings can’t be ignored. Whether you have an active loan with monthly payments or are trying to grow your savings, it’s crucial to stay updated about these shifts.
At Saral Banking Sewa (SBS), we guide you through these changes and help you make the most of your finances during both high and low-interest periods. Keeping you ahead of the curve, we help you make smarter decisions every time—whether it’s refinancing your loan to lock in a fixed rate or finding higher-yielding savings accounts.
So, stay proactive with SBS and keep your financial goals on track, no matter how the rates fluctuate.
.jpg)
