Experts have expressed concern over the negative impact arising because inflation rates exceed bank interest rates.
According to Nepal Rastra Bank’s recently released report on “Current Economic and Financial Situation of the Country,” the annual point-to-point consumer inflation for Chaitra 2082 (March 2026) stood at 4.47 percent.
Similarly, at the end of Chaitra 2082, the weighted average interest rate on deposits at commercial banks reached 3.40 percent.
Experts warn that when inflation surpasses the interest earned on bank deposits, savers may gradually enter a state known as “dis-saving.”
Dis-saving is defined by economists as the situation where individuals withdraw their savings to cover expenses because inflation erodes their income’s purchasing power.
Nepal Rastra Bank has indicated that it is taking necessary measures to ensure bank interest rates do not fall further from their current levels.
For over two years, commercial banks have been gradually lowering the interest rates they offer savers.
What Impact Does This Have on the General Public?
Former Governor of Nepal Rastra Bank, Dipendra Bahadur Kshetri, stated that when interest rates decrease and inflation rises, people tend to spend more rather than save, and loans at banks may decline.
He explained that in the past, higher interest on fixed deposits attracted more savers, but as interest rates have dropped recently, that appeal has diminished.
According to data from Nepal Rastra Bank, at the end of last Chaitra, fixed deposits constituted 38.9 percent of total deposits in banks and financial institutions, down from 51 percent during the same time the previous year.
Kshetri highlighted that rising inflation combined with declining interest rates has led savers to withdraw their fixed deposit funds prematurely for spending.
“With interest rates on savings and fixed deposits becoming nearly equal, funds held in fixed deposits are decreasing,” he said.
“Consequently, as savings are withdrawn rapidly, banks ultimately risk a decline in their savings base.”
Therefore, even though consumers might currently enjoy increased spending, in the long term, there is a risk that savings will be insufficient when needed.
Kshetri warns that if such a situation persists long-term, both banks and consumers will face losses.
Former Acting Governor of Nepal Rastra Bank, Krishna Bahadur Manandhar, also noted that while the immediate impact is limited, sustained disparity between inflation and interest rates could lead to serious consequences.
“When interest rates decline, funds in fixed deposits shift, and international experiences suggest that money withdrawn from saving tends to be spent more, reducing savings in the long run and making economic recovery more difficult,” he explained.
Manandhar added that because people have limited attractive options for using their banked savings, loan demand in banks has not significantly declined.
He noted that sectors such as gold, shares, and real estate currently lack economic favorable conditions, which is why bank loans have remained stable.
Manandhar views the absence of signs indicating increased loan demand or investment returns as an increased risk.
“Banks have adopted a somewhat cautious approach, so even with falling interest rates, they are not rushing towards cooperatives. Gold is expensive, land acquisition is difficult, and the stock market is unstable. These factors reduce pressure on banks’ deposits,” he said.
“Banks have held onto deposits largely because alternatives are unattractive. The fact that deposits have not declined despite very low interest rates indicates the poor quality of investment options.”
According to him, the solution is to create an environment that stimulates both investment and loan disbursement.
What Is Nepal Rastra Bank Doing?
Image Source, NRB
Nepal Rastra Bank has issued warnings that although the current inflation and interest rate discrepancy has limited short-term negative effects, it could have significant long-term consequences.
Assistant Spokesperson Suman Nyaupane said, “Drawing conclusions from a one to two-month snapshot differs from regular assessment.”
“The central bank regularly makes decisions based on quarterly monetary policy reviews.”
Nyaupane also confirmed that funds are being shifted between different types of fixed deposit accounts.
Currently, the weighted average interest rate of commercial banks is around 3.4 percent, which has been declining continuously for nearly three years.
Interest rates of banks were 8.26 percent at the end of Chaitra 2079, followed by 6.53 percent in 2080 and 4.54 percent in 2081.
Regarding efforts to prevent further decline in interest rates, Nyaupane stated, “The central bank has implemented a structure to keep short-term interest rates within a fixed range and conducts liquidity management by either withdrawing or injecting funds into the market.”
“Without these operations, interest rates would be even lower than they are now. Therefore, Nepal Rastra Bank is actively working to halt any further decrease.”
“Since the difference in interest rates between savings and fixed deposits has narrowed, people’s interest in saving has declined.”
